Weekend reading: Will ethical robo-investing undo the rise of index funds? post image

What caught my eye this week.

Fancying that you’re living at the end of progress is a recurring human failing. Think of the Roman cartographers who didn’t put anything on their maps west of Britannia, the IBM president who in the 1940s thought the world would need five computers, or the bonce who wrote The End of History.

Investors are no different. How many of us believe we’re marching ever upwards to a future inevitably dominated by index funds?

The secret is out, and money is flowing out of active funds and into trackers. What could possibly stop Vanguard ruling the world? Even I did a victory lap to that end to mark the death of index fund pioneer Jack Bogle last month.

Yet the same technology that makes it so cheap for Vanguard to run its index funds (hint, it has more than five computers) could also be their undoing.

In an op-ed for Investment News, Joshua Levin argues that:

In the next few years, the entire rationale for investing via funds will dissolve.

Advances in technology have transformed industry cost structures. Absent the need to pool assets for volume discounts, advisers and relationship managers can skip the one-size-fits-all cookie-cutter vehicles.

Instead, financial advisers will use software to truly customize portfolios, resulting in a more engaged and loyal client base.

It’s not the first time I’ve heard such talk. For instance robo-adviser platforms are exploring similar tactics in the US to eek out additional returns from tax loss selling.

I have some sympathy for this fund-less vision – and certainly a lot of curiosity.

But it’s notable that the platform Levin works for is focused on socially responsible investing.

Nothing wrong with that. However as a guest post on the Epsilon Theory blog pointed out in an unrelated article this week, ethical investing is being seen by some active managers and advisors as a way to reinvent active management for a new breed of customer.

And a handy side effect is they can keep their jobs and higher fees:

This is an admittedly clever strategy. At least in theory, it moves the conversation away from fees and performance.

Now we’re talking values.

‘Cause if performance is pretty decent, and the fees are reasonably competitive, wouldn’t you rather have a portfolio aligned with your values? Isn’t the alignment of your investment capital and your values worth it?

Don’t you want to make a difference?

Watch this space. And don’t write history off too soon!

From Monevator

Important note: We have republished Tuesday’s article: ‘Who are you KID-ing? Understanding the ongoing charge figure of an investment trust. The first version had a big error in how total charges were calculated. (We were led astray by a miscommunication). Please re-read! – Monevator

From the archive-ator: Admit it, you miss the market meltdown – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Pension credit reforms set to save government £400m [Search result]FT

Ofwat’s pushback against water companies could mean cheaper bills – ThisIsMoney

House price growth at near six-year low on Brexit fears… – BBC

…but Northern cities have seen a price boom since referendum – ThisIsMoney

Number of young adults on property ladder plunges by a third in a decade – ThisIsMoney

Italy has slipped into recession – Business Insider

Stock picking is hard: A reminder – The Reformer Broker

Products and services

Lloyds unveils 100% mortgage for first-time buyers – Guardian

Minimum investment in Premium Bonds cut from £100 to £25 – AOL

Ratesetter will give you a free £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

Grape expectations: How to find the best value wine – Guardian

London Capital & Finance mini-bond investors were promised 8%, now in limbo – ThisIsMoney

Homes for sale in a forest [Gallery]Guardian

Comment and opinion

The futility of market timing – Albert Bridge Capital

Home bias: A UK perspective – Bunker Riley

One big thing – Of Dollars and Data

Tim Harford: The super-rich are an easy target for tax [Search result]FT

Investing ability changes with age – Siliverlight Asset Management

Declaration of financial independence? – Fire V London

My investing journey – Young F.I. Guy

Reentry into corporate life – indeedably

Diving deeper into investment trust charges – IT Investor

Social housing – not 100% mortgages – is answer to the housing crisis – SLIS

Should you roll the dice on Games Workshop PLC? – ShareScope

Investing in turnarounds and recovery stocks – UK Value Investor

Brexit

Brexit puts relocation on the agenda for one in three firms – Reuters

UK manufacturers are stockpiling at the fastest pace in 27 years – BBC

Poorer Brexiters voted to be worse off? There’s nothing wrong in that – Guardian

London plumbing firm besieged by militant Leavers – via Twitter

Gibraltar ‘colony’ row flares as EU makes travel visa-free for Britons – Guardian

Marina Hyde: Brexit enters a state of emergency – Guardian

Kindle book bargains

Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb – £1.99 on Kindle

ReWork: Change the Way You Work Forever by Jason Fried – £1.99 on Kindle

Unscripted: Life, Liberty, and the Pursuit of Entrepreneurship by MJ DeMarco – £0.99 on Kindle

Off our beat

How Martin Lewis became the most trusted man in Britain – Guardian

Why are young people pretending to love work? – New York Times

Chateaux-ed dreams: Turkey’s £151m castle ghost town – Guardian

How to slow down time and live longer – Mr Money Mustache

I’ll pay what they pay: Micropayments vs advertising – Signal vs Noise

Why Britain can’t get enough cocaine – Guardian

And finally…

“Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.”
– Nassim Nicholas Taleb, Fooled by Randomness

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

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