It's time for an investment fund cull.
Here's a campaign I support, and it comes from an unexpected source. Axa Wealth is bravely calling for the number of investment funds to be slashed by at least one-third, and quite right too.
It has just published what it calls a "white paper", 'Wealth management -- from recession to recovery', which claims the thousands of investment funds currently touting for business should be dramatically reduced, because the vast choice only confuses customers and deters them from investing at all.
The pensions industry has already been through its simplification process, it says, and the investment industry needs a similar cleansing.
You bet it does.
Sharpen your axe
Axa rightly claims that less is more, and offering consumers a vast choice is no guarantee that they will make the right choice, quite the reverse.
There is a 90% difference between the best and worst performing funds in the UK All Companies sector, and 105% in the European (excluding UK) sector, Axa says. So making the wrong choice really can hurt.
My only quibble has to be: Why stop at one-third? Why not a half? Or three-quarters? Or even more?
With thousands of funds on the market, we can afford to be severe. Face it, the vast majority of investment funds wouldn't be missed, in fact their forced exit would be a blessing.
At least, it would be a blessing for investors, but not for all those fund managers drawing handsome salaries and bonuses for routinely underperforming their benchmark.
A modest proposal
I can't see too many asset management houses willingly placing their investment funds on the block. So where do we start the cull?
Axa says the industry needs to respond by "developing fund filtering technology to support consumers' choices". That might work, but I'm for more brutal measures. Perhaps we could start by lining up the big-name serial underperformers and publicly guillotining them, one by one.
We don't need to develop new fund filtering technology to identify them, we could use existing research, such as Bestinvest's regular Spot the Dog report, which names and shames funds that have underperformed their benchmark index by more than 10% over each of the last three years.
Its recent report finds plenty of big ugly hounds in the doghouse, including Swip Emerging Markets, Fidelity UK Growth, Artemis UK Growth, Prudential Pacific markets, Invesco-Perpetual US Equity, JPM Premier Equity Income, and, er Axa European Growth.
That is why I was surprised to find one corner of Axa's empire suggesting a slaughter of investment funds, because a fund manager of its size is bound to have a fair share of howlers.
After we have put those dogs to sleep, we could start on the high street banks. Too many budding ISA investors see their hopes of future wealth cruelly dashed by some hopeless UK growth fund they saw advertised while queuing up at their local bank.
Off with their heads!
Spare these three
We could generously spare those fund management groups that have managed to keep all their funds out of the mire. After all, there are only three of them, according to Bestinvest: Jupiter, Neptune, and First State.
I was delighted to see through those three holding their heads up high, because funds from these managers are pretty much the only survivors from a recent unit trust cull of my own.
As I wrote in Funds vs Shares, I analysed how the charges on actively managed funds drag on performance, and was unpleasantly surprised by the results. As a result, I had a clear out.
Nearly all the funds I binned had dutifully followed their benchmark index, sometimes rising a little faster, sometimes a little slower, but doing nothing to merit all those expensive lunches I was buying the managers.
But I did hug three old favourites even closer to my chest: my favourite fund Jupiter Financial Opportunities, First State Greater China Growth and Nepture US Opportunities.
Now wouldn't it be nice if ordinary investors found it a lot easier to discover gems like these, without having to wade through a swamp of dross?
The more dross that fund managers pump out, either to hop onto any passing trend or please their marketing department, the harder it will be for most people find a real sparklers.
So let's get chopping now.
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