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Stephen Womack: Less is more on fund choice

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I was struck last month by news that Procter & Gamble is planning a big clearout. The owner of brands ranging from Pampers and Fairy to Gillette and Olay wants to cull up to 100 names to concentrate instead on its biggest winners.

The company has decided it can make more money for shareholders by offering a focused range of star products rather than an expanded stable packed with lesser performers.

Chief executive officer AG Lafley told investment analysts: “There is a lot of evidence… that the shopper and the consumer really don’t want more assortment and choice. Consumers want to keep their life simple and convenient.”

His thinking echoes the work of Barry Schwartz, author of The Paradox of Choice, who says too much choice can overwhelm a consumer and lead to them buying less. There is strong evidence that consumers faced with too many options can freeze and make no decision at all.

There is a clear parallel here with the world of fund management.  Swap the word consumer for adviser or investor and the word brand for fund and you could be describing the hundreds of moribund funds that litter the investment landscape. They are the investment equivalent of the archetypal teenager – hanging around on street corners looking for a purpose in life.

US brand consultant Robert Passikoff, a Forbes columnist, talks of placeholder brands – products which perhaps had a purpose and rationale once but which have become indistinguishable from their rivals. They may be barely profitable and are simply occupying shelf space and eating up management time and money for the firms that make and sell them.

An eye-opener for me as a newish IFA has been the sheer range of funds available under the bonnet of some product wrappers – especially as many of the choices are often unsuitable or uninspiring.

I had a depressing experience last week when reviewing the portfolio of a new client. They have a historic investment bond that cannot currently be sold for tax reasons but needs a fund restructure in line with our agreed new overall asset allocation model.

Despite an 80-page fund list and more than 200 choices of both internally and externally managed funds, there was little to inspire and only a handful of funds I felt able to endorse. So much of what is on offer seems to be placeholder funds, virtually indistinguishable from each other.

A quick glance on Trustnet shows 23 investment groups with 40 or more Oeics or unit trusts in their stable. 

Does every one of these companies’ funds truly stand up as a winning commercial prospect?

In this era of platforms and mix-and-match portfolios, you do not need every provider or investment house to offer every flavour of fund.

It would be lovely to see more investment groups take a dispassionate view on what they are really good at.  A bold streamlining of their fund range would cut costs and free up fund managers and their research teams to devote more time to the areas where they excel. That should translate into better investment performance.

If a streamlined range of products works in supermarket aisles, perhaps there is a lesson for the virtual aisles of the fund supermarket and platform world.

Stephen Womack is an adviser with David Williams IFA Chartered Financial Planners

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Well said Stephen, it would be very nice to see Fund Groups attempting to only do what they are good at. However its probably not quite a fair comparison – toothpaste is toothpaste and most of the promises on the package are dressed up hopes. In fairness to Fund groups, there is a huge problem of legacy and of course now the clean share classes blah blah.. I believe that there are currently more funds than shares and the Fund Groups tend to adopt a me-too mentality with themed funds, not helped by a rather hungry audience looking for something different.

  2. I tend to agree… IMHO there either needs to be virtually complete freedom of choice (for those who genuinely need it) or very streamlined / simplfied selections (for those who don’t yet want or need the choice).

    Unfortunately, many legacy products do neither – making the work of the adviser/investor very hard resulting in them selecting ‘second best’ knowing there is better our there but perhaps the cost (or tax implications) prevent that choice from being available.

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