INVESTOR’S NOTEBOOK STEPHEN CRANSTON
Iam all in favour of index-based products. They should keep the so-called active managers honest and put downward pressure on fees. I think index funds work best when they are linked explicitly to a single index, such as the Top 40. I have not seen significant demand for passive multi-asset funds, and many of these, such as the Sygnia Skeleton range, indulge in very active judgment-based asset allocation. Skeleton is a great brand name which reflects Sygnia CEO Magda Wierzycka’s philosophy that you can’t be too rich or too thin. But as a pension fund trustee I am not yet convinced that a passive multi-asset fund can beat a well co-ordinated active manager, particularly when equities are doing badly. Allan Gray founded his business on the premise that investment was more than just a random walk. Old Mutual might not have the same storied reputation but it has a gem in Profile Edge 28 (formerly Profile Pinnacle). Investec has done well recently in the balanced space, intriguingly by adopting a hybrid of the active and passive styles which focuses systematically on earnings revisions. I still believe that the combination of these three managers will outperform a passive multi-asset fund, particularly if it has fixed asset allocation. It used to be conventional wisdom that asset managers could add value by stockpicking but only destroy it through tactical asset allocation. Increasingly I believe the opposite — stockpicking is often futile, given the self-correcting power of the index. It is in tactical asset allocation that active managers can still beat their passive counterparts.
I would be more keen to support index funds if so much didn’t ride on which index fund to pick. Over five years the annualised performance has varied from 0.6% for the Satrix Resource 10 to 28.8% for the DBX-Tracker MSCI USA. Even if you take what should be a homogeneous category of broad SA funds, there is a significant gap between the 9.8% from the Satrix Rafi 40 and 15.4% from Ashburton Top 40. And passive doesn’t always mean cheap. Exchange traded funds have fees below 1%, except for Stanlib Property on 1.1% (though you need to consider the bid/offer spread and the additional charges for recurring contributions as well). But some are nudging the 1% mark, which would be considered outrageous internationally. The DBX-Trackers range charges 0.86%, Ashburton Mid Cap 0.8%. But to be fair, fees go all the way down to 0.06% for the Stanlib Swix Top 40 (which has beaten more than 90% of general equity funds over three years) and from 0.11% to 0.16% for the NewFunds Givi. Not that ETFs are associated solely with equities anymore. There is the highly successful NewGold, which invests directly in gold bullion. Gold ETFs are catching on internationally as well and demand for fixed income funds is up 40%, with investment-grade corporate bonds the most popular destination. Some people like the ETFs’ close cousin, the exchange traded notes. I get uncomfortable as ETNs do not invest in the underlying shares or commodities that make up the index and just issue an IOU instead. But some people don’t seem to mind.
Banks have got a long way to go before they can be considered to treat customers fairly. I withdrew about R12,000 of my own money (and stayed in credit) from Absa recently and was charged R231 for the privilege. Is it reasonable to charge more than most domestic workers earn in a day just for pushing a few buttons? I think it would be entirely reasonable to cap these fees at R50, and ideally make all these transactions free for clients in credit. And can somebody explain to me why my regular Internet payments go through immediately but if I select the immediate Internet payment I have to wait an hour?