Over a glass or two last week, a learned colleague slipped into one about whether or not investment managers were once again “feeding the machine of mediocrity”?
The emphasis for the past few years has been on outcome-based investing, with the outcome at a client level usually being a particular income target, or a specific growth yield around an event, with that event being anything from retirement in 40 years’ time for another 30 years, to an education in 15 years for a further 10 years, a wedding in five years (for who knows how long…) to a holiday next year.
Then there are the more recent additions of having to pay off a student loan and helping your kids with a deposit for a house. Love ’em, but you don’t want them living with you forever.
So what about the outcome investors really want – considerably more money tomorrow than they have today?
Investors want returns; the industry is providing caution and protection. Even cautious investors want close to double digits every year; the industry is aiming for 3-4% every year.
The industry is also working in a world where the risk-free rate is 0.5% and the average cautious fund (using the IA Mixed Investment 20%/60% Shares category as a proxy) has provided -1.6% returns in the past year rather than the 3-4% investors should expect. If you add charges on to these figures then up to 50% of the cash an investor hands over disappears in fees that are hardly deserved by the fund manager.
