10 questions everyone should ask their investment manager
By Cristian Angeloni, 1 Nov 19
UK wealth management boutique demystifies investing myths and investor behaviour
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Beware of fund rating as very often those with fewer stars perform better, and this can help investors differentiate ‘good’ products from the ‘bad’ ones.
Can I achieve good portfolio performance by picking top-rated funds?
“This approach doesn’t work. In fact, five-star funds are known to perform slightly worse than three-star funds.
“Research shows that funds on consultants’ ‘buy lists’ do worse in the next three years than those on their ‘sell lists’.”
How can investors distinguish good products from bad one?
“There’s no single way to make this distinction – but there are a few helpful proxies. One area that we have already discussed is fees. Any product with high fees warrants extra scrutiny. Even a top-performing product will be bad if its returns are consumed by excessive fees.
“Another common proxy for a bad product is its complexity. Why is it so complex? Each layer of complexity usually represents an additional person getting paid. The top-level fees for complex products might seem reasonable at first, but their upside rarely materializes … at least not for the investor.
“A final proxy is to understand the sales commissions associated with a product.
“Investment products that are associated with high commission payouts – like investment-linked life insurance policies – are very good for the people selling them. But they are usually very bad for the people buying them.”
Tags: Henderson Rowe
