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The Miller’s tale

Alan Miller’s new firm is investing only through ETFs

I wonder how many fund managers share the former New Star and Jupiter manager Alan Miller’s sentiments.

For many years he plied his trade as an active fund manager and was in charge of New Star’s inaugural flagship fund – a fund, which, let’s face it, was all about the man at the helm and his ability to pick stocks.

But 10 years on, Miller gives the impression that he thinks most active management is a bit of nonsense suggesting that he was living a lie. Or perhaps it wasn’t until he took a step back that he could see what many advisers know already.

They know that the vast majority of actively managed funds underperform more often than not and that many are nothing more than closet-trackers, yet investors are still being asked to pay a hefty fee.

Miller says: “The odds are stacked against you. Very few fund managers will beat the market. Once you take into account the cost of dealing, annual fees and performance fees you will get a lower return.”

Miller was made an example of by John Duffield when he removed him from the UK growth fund after a year of underperformance and this, of course, was followed by a high-profile divorce. But he is back on the circuit and is trying to get noticed again.

On meeting him, he comes across as a likeable fellow – all smiles and jokes. On asking Miller why returned to the City, he replied: “It was great going to a gym class and being the only guy in the room, but once the credit crunch hit and bankers lost their jobs that soon changed. It became less fun.”

Of course, Miller can afford to smile and joke. He made millions plying the trade he now criticises – and that goes for hedge funds too.

But Miller does make a serious point and it is intriguing that he is among a growing band of wealth managers that are using exchange traded funds rather than actively managed unit trusts and Oeics.

He now runs his own wealth management company, Spencer Churchill Miller, which only uses exchange traded funds in its portfolios.

The use of ETFs has increased significantly in recent years. Many investors view them as a means of getting quick exposure to the market or of parking money when they have a positive view on equities but want time to finesse their thinking on which funds or stocks to buy and in what proportion.

Others reckon they will do the job for mainstream investors where active funds fail.

John Redwood, the MP and fund manager, is another who has created a business with ETFs at its core, while Britain’s best-known stockbroker, Justin Urquhart Stewart has been banging the ETF drum for some time now.

Miller confesses to not owning any actively managed funds (he still holds a smattering of shares) in his own portfolios too.

He believes that investors stand a better chance of holding on to their wealth if they use ETFs – investors who bought his New Star fund might testify to that. And low charges, he says, are one of the pivotal reasons, he says.

I suspect that ETFs will become mainstream as investor education increases. ETF players, notably BGI and ETF Securities, are also pinning their hopes on the RDR because ETFs are not “currently part of the tied or multi-tied product” sets.

With commission bias removed, transparent costs and an increase in the number of fee-based advisers, the investment product playing field becomes more even.

If they do, Miller will have even more reason to smile.

Paul Farrow is digital personal finance editor at the Telegraph Media Group

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