Julian Knight: So, as clear as mud then for fund investors
Gutless attempt to simplify the situation relating to absolute returns is just a waste of time
Sunday 03 March 2013
Phew! Thank goodness for that. I was beginning to get worried about the proliferation and potential mis-selling of absolute return funds. These funds, which sprang up a few years ago, use often-fiendishly complex financial transactions, supposedly to deliver steady returns in good and bad times for the market.
All sounds great, but the problem is they often come with high charges, and it has been shown that to date they don't really work. Many of them are so complex experts suggest that instead of being safe-ish investments – more so than, say, technology, smaller-companies or emerging-markets funds, for instance – they are in fact inherently risky, and this is hidden behind jargon that would make the Sir Humphreys of this world purr with pleasure.
But now, after an exhaustive and lengthy probe of the sector, the Investment Management Association has come up with how it intends to protect investors from being potentially misled by Absolute Returns and that is – wait for it – tack the word "targeted" on to the front of Absolute Returns, so in future they will be called Targeted Absolute Returns. This is meant to inform ordinary investors that there are no guarantees with absolute returns. Self-regulation in all its Technicolor glory.
What we actually needed from the IMA was a bit of leadership, a genuine sifting of the wheat from the chaff in the sector so that when investors are being sold – very few voluntarily buy one of these products – they can be sure that what they are getting is broadly as described by their financial adviser. A clearer demarcation of what is an absolute return fund, and what is something much riskier posing under the name absolute returns, was what was needed.
Instead we have the mean-nothing, do-nothing, no one-cares "targeted" tacked on to the front of the product. A complete waste of time, energy and yet another example of the gutlessness of bodies that purport to represent the financial services industry.
Let's power up energy rivalry
I could almost hear the cracking of knuckles and collective grinding of teeth as British Gas announced bumper profits only a short time after it had hiked its energy prices. The UK's largest gas and electricity supplier is making a profit equivalent to £50 per customer a year.
Unlike many, I don't chide a company for making profits. After all, we all benefit through our pension funds, unit trusts and the wider economy. And what's more, as a keen watcher of the energy market, I find British Gas is far from the worst practitioner in the space, it just seems so because it has high name recognition and a huge number of customers.
But I think the reaction was such because most people feel that the market is simply unfair. We have replaced a nationalised industry with a six-way monopoly, and those private firms have been allowed, in the turgid language of business, to sweat to exhaustion the assets they acquired at privatisation.
Now that our power supply is creaking, they are being allowed to up their bills above and beyond what is justified by the wholesale market price in which they collectively have a hand in setting. The comparison sites say shop around for a deal – they would say that though, wouldn't they? – but after the first time you do it, the savings are pretty minimal.
Meanwhile, you feel that the regulator Ofgem would like to put a bridle on the suppliers but have been outmanoeuvred in Whitehall, and subsequently rather given up the game. What we desperately need is more competition in the energy market – particularly on the wholesale side. That way, when we hear of profits made by an energy supplier, we won't feel so ripped off.
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