The recent Neil Woodford crisis raises an important question: is the media biased towards actively managed funds? There are certainly far more articles about active than passive, both in the trade press and in mainstream publications.
In one sense, that does not seem unreasonable. After all, active management remains far more popular than indexing.
The media, you could argue, is simply reflecting how most invest.
But there is overwhelming evidence that only about 1 per cent of active funds beat the market over the long term on a cost- and risk-adjusted basis. Why should so many column inches be devoted to an industry that in most cases subtracts value for consumers? Surely journalists have a duty to act in the interests of their readers?
As a journalist myself, I know my fellow financial hacks genuinely want to help investors achieve better outcomes. But there are two big problems. The first is that most financial publications wouldn’t exist if it weren’t for fund industry advertising.
But there is a second, more fundamental, problem: passive investing is boring. Yes, it’s the best way to invest. But repeating the same old simple messages is hardly going to boost circulation.
Journalists need stories. With active management, there’s always something to write about; new funds, short-term outperformers, the latest consumer trends, and endless speculation about the impact of major events on the economy and markets.
On the other hand, constantly telling readers the truth about investing without boring them to tears is a real challenge.
To quote the Wall Street Journal’s Jason Zweig: “My job is to write the exact same thing between 50 and 100 times a year in such a way neither my editors nor readers will ever think I am repeating myself.”
There’s a symbiotic relationship between the fund industry and the financial media. They need each other. The industry needs the oxygen of publicity, while the media needs the advertising revenue and a steady supply of stories.
But editors have to address the role the media played in the Woodford bubble and ask themselves some difficult questions.
It’s unacceptable, for instance, for brokers like Hargreaves Lansdown to be treated as impartial experts. Nor is it good journalistic practice to write about an active manager without giving details of their long-term performance, adjusted for risk and cost.
Let’s see some more academics quoted – people like David Blake at Cass Business School, who has spent decades researching fund performance.
Finally, let’s remind readers a little more often that there is a viable alternative to active management in the shape of low-cost index funds.
As my fellow blogger Monevator put it: “Investing for the masses is a solved problem. It’s 2019, and someone saving for their retirement needs a star fund manager about as much as they need a horse.”
Robin Powell is a freelance journalist and editor of The Evidence-Based Investor.
You can follow him on Twitter @RobinJPowell