What ARE they hiding? Fund firms who refuse to reveal where your cash is...
SOME of the country’s biggest managers of our Isas and pensions continue to play hardball when it comes to fully revealing how they make money on our behalf. A survey among 25 top investment managers by Wealth – including many household names such as Fidelity, Jupiter and Invesco – confirms that only a handful (without prompting) are currently prepared to reveal to investors up-todate details of all the shares they hold in their investment funds or trusts.
This is despite the fact that such disclosure is mandatory in other parts of the world such as the United States.
Typically, a fund or trust will hold anything between 30 and 100 plus stakes in individual companies. It then (hopefully) makes money for investors by buying and then selling these company shares at a profit – as well as receiving the dividends from them and passing the income on to investors by way of their own dividend.
Consumer champions argue the refusal of the investment industry to be fully transparent does it no favours. They say it perpetuates the view that the funds industry is more interested in making billions of pounds a year in profits for itself – and in the process giving fund managers lavish lifestyles – than it is in building long-term wealth for investors.
It also enables the industry – they argue – to foster an aura of sophistication and hence makes it easier for them to maintain fund charges that many investment experts believe are too high and indefensible.
Annual charges on many actively managed funds – run by investment professionals – are routinely in excess of one per cent and often treble those levied on a fund that uses computer programmes to track specific stock market indices (so-called index-tracking funds). The higher an annual charge that a fund levies, the more any investment returns generated by a manager are eroded.
In addition, experts believe this lack of transparency allows some ‘active’ investment managers to run portfolios that are little different to the stock market they tell investors they are striving to beat. In other words, they promote themselves as active fund managers and levy premium fees but are little more than ‘closet index trackers’.
Gina Miller, co-founder of wealth management firm SCM Direct, believes investors have a ‘ basic right’ to know where their hardearned money ends up being invested. Without this, she argues, they are unable to ‘ make fully informed decisions’.
Seven years ago, along with husband Alan Miller( a former successful fund manager with investment houses Jupiter and New Star), she launched a ‘true and fair’ campaign aimed at getting the investment funds industry to become ‘100 per cent transparent’.
On Friday, she told Wealth: ‘The excuse we keep hearing being spouted by the investment industry is that information on fund holdings is commercially sensitive.
‘But this is an intellectually dishonest argument that we’ve heard for far too long.
‘ In the United States, investment companies must publish their full holdings within 60 days of each quarter end. This has not been a problem for the US investment funds industry, so why is it a problem for the UK invest
ment industry?’ Miller believes full transparency would rid the investment funds industry of scandal and provide investors with better value for money. She asks: ‘Why can’t the industry and the regulator do what is morally and ethically right, rather than defend the indefensible?’ In recent years, the Financial Conduct Authority has issued a series of proposals designed to increase competition in the funds industry, but full fund disclosure has not been one of them. Miller’s is not a lone voice. Andy Agathangelou is founder of the Transparency Task Force, an organisation set up to agitate for greater disclosure across the financial services industry. On Friday, he told Wealth that it was no longer acceptable for fund managers to argue that transparency would give away their ‘ secret sauce’ (the ingredients that enable them to make money on behalf of investors). He added: ‘ It is crystal clear that investment offerings reliant on opacity and obfuscation are heading for obsolescence. Many investors are no longer prepared to invest in mysterious black boxes that may contain assets they don’t want such as shares in companies that have poor corporate governance records or whose business activities harm the planet.’
Although the results of Wealth’s survey show that some fund groups – especially those owned by an American parent company – are embracing greater transparency, others argue that a requirement for funds to disclose all shareholdings on a regular basis would not be in the best interests of investors.
Fundsmith is one of the country’s most successful fund management groups, headed by investment ‘guru’ Terry Smith. It makes available details of all holdings in its £17 billion Fundsmith Equity fund when it publishes interim and annual accounts for it.
In addition, it publishes on a monthly basis any new holdings the fund has, as well as any outright disposals.
But it told Wealth: ‘We are selling a fund, not a list of company names. We don’t believe that knowing what a fund owns helps investors.’
THE SURVEY
WE asked 25 investment groups, between them managing billions of pounds of our long-term savings, a simple question: ‘Do you publish full up-to-date details of all your investment fund portfolios, including all company holdings?’ As a bare minimum, most ( we label them the conformists) confirm they include full company holdings in the interim and year end accounts published for individual funds.
These accounts, they say, are accessible via t heir websites although there is often a time delay between the accounts being drawn up and then made available. For example, JP Morgan Asset Management says accounts are ‘released within four months of the accounting year end for a given fund’.
In addition, investors can obtain monthly details of a fund’s top ten holdings by visiting the investment manager’s website or using a funds data website such as Trustnet.
Again, there is often a delay between the data being taken and publication – typically between ten and 15 days. So a top ten fund holding as at the end of this month will not usually be published until the middle of May.
Some fund management groups do go the extra mile (we believe they are reformists).
Liontrust runs a range of ‘socially responsible’ or ‘sustainable’ funds where full portfolios are disclosed quarterly.
Guinness Asset Management discloses full fund portfolios within ten days of a month end while Woodford Investment Management makes its portfolios available to ‘ registered users’ of its website every month.
Franklin Templeton discloses full portfolio details for its funds, either monthly or quarterly. Among its funds providing full portfolio details is the popular Templeton Emerging Markets Investment Trust.
Currently, its portfolio as at the end of 2018 is available via Franklin’s website, with the number of shares held, their market value and percentage of portfolio given.
Investment trust Foreign & Colonial, the country’s oldest, publishes details of all its 450 investments on its website. The £4 billion portfolio as at the end of February is currently available with the trust now run by international asset manager BMO Global Asset Management.
Janus Henderson publishes portfolio holdings for its investment trusts on a quarterly basis, with a time lag of one month.
The exceptions are The City of London and Henderson EuroTrust where portfolio information is published monthly, but one month in arrears. Some of the
views of‘ conformists’ and ‘reformists’ are shown opposite.
DISCLOSURE ON REQUEST
ALTHOUGH some fund groups keep fund portfolio disclosure to a minimum, some will provide details if an investor requests them.
Fidelity says it will disclose full holdings to clients on an ‘ad hoc’ basis. BNY Mellon, JP Morgan, Investec and Octopus say they will do the same while Kames Capital will disclose holdings in alphabetical order – with no information on the size of position.
Axa Investment Management will make available a full list subject to a five- day time lag while Aviva says it will provide full portfolio holdings on request – but embargoed for one month.
Invesco and Royal London do the same, but with a three-month time lag. Some groups will only release information on a case by case basis (Legal & General and Crux).
THE VIEW OF ADVISERS
WEALTH spoke to a number of investment advisers about the merits of full fund disclosure.
Most agreed with Gina Miller that it was a good thing. Mark Polson, of financial services consultancy The Lang Cat, says: ‘Transparency is good and anyone who says otherwise is either misguided or has something to hide. A typical Isa investor probably neither wants nor needs such detailed information but it’s good to know it’s there and there are some investors who would like it.’
Ben Yearsley of Shore Financial in Plymouth says: ‘Fund managers should be more open about what they own and list all holdings more than twice a year.’
Justin Modray, of Candid Financial Advice, says the argument tips towards full disclosure. Yet it would only work, he says, if any new rules ( set by the Financial Conduct Authority) ensured managers were consistent about how up- to- date such information was.
WEALTH VERDICT
EASY! Publish and be damned.