Weekend reading

Good reads from around the Web.

It’s a truth universally acknowledged that anyone in possession – or pursuit – of a fortune will run up against a financial services industry determined to make life more complicated for them, in order to extract their portion of silver.

So passive investors should be concerned that the fast-complicating ETF sector is set to become more convoluted still.

The profusion of ETF types – synthetic, leveraged, short, sector-focussed, actively managed, and more – has already moved ETFs far from their origins as simple stock market-listed index funds.

And now Rick Ferri warns that rule changes by the SEC to make it easier for companies to launch ‘self-indexing’ ETFs will make things murkier still.

Ferri writes:

Soon there will be self-indexed ETFs that don’t follow any published index.

They’re secret.

Only the fund providers themselves will know how the index is constructed – and what’s in it – even though the ETFs will be marketed as passive indexing.

That authority behind the change, the SEC, is a US body, so initially this is a concern for US investors (and those who buy US-listed ETFs).

But where the US leads in ‘innovation’, the UK eagerly scampers behind.

As a result we will also need to be doubly alert to what we’re investing in.

That’s probably okay for Monevator readers. We’re all well aware of the need to check out which index our fund follows, how it is invested, where it is domiciled, and what it costs to run.

But the ordinary and clueless man or woman in the street hasn’t the foggiest.

Ferri notes:

If self-indexing sounds a lot like active management, it should, because that’s essentially what it is.

The requirements for self-index ETF holdings are identical to the website disclosure requirements applicable to actively-managed ETFs. So, why not just call this active management?

I suppose some ETF providers may conceivably use self-indexing to create real-but-cheaper ETFs that offer broad market exposure while saving some money paid to index companies.

But others will produce exotic ETFs that cost more to run and that are benchmarked – and marketed – using their own made-up indexes. These will be designed to either sell investors an exciting active ‘story’, or to provide a more flattering benchmark for performance than a vanilla index would.

Ho hum. As I said last week, the so-called ‘lazy portfolios’ will meet the needs of the vast majority of people who want to save and invest for their future.

Every time the financial services industry tries to make us forget that, somewhere out there a happy retirement dies.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: If you’ve run up a big bill on a 0% credit card like I have (for interest rate versus inflation arbitrage purposes, not to get into ‘real’ and hateful debt) then you might be interested in Halifax’s All in One card. According to The Guardian, a rebate brings the balance transfer fee down to 1%. So I could roll over my debt for about £40 and pay 0% interest for another 15 months. Stoozing is (almost) back!

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

  • Is a stock market train wreck coming? – Wall Street Journal
  • Understanding ‘clean’, ‘unbundled’, and other fund types – FT Adviser
  • What to do when you have no investing edge – Forbes
  • Swedroe: Are passive investors suicidal? – CBS News

Active investing

  • Careful which AIM shares you put in your ISA [Search result]FT
  • The case for owning UK commercial property [Search result]FT
  • A ‘generational’ chance to sell bonds – MoneyBeat/WSJ
  • Don’t judge a fund by its cover – Wall Street Journal

Other stuff worth reading

  • Aging and personal finance: Time as money – The Economist
  • West Brom’s table-topping 1.48% fixed rate mortgage – Telegraph
  • The upside of certainty – Denton Record Chronicle
  • Family offices chase wealthy’s $46 trillion in assets – Bloomberg
  • Student costs of living: 1993 versus 2013 – The Guardian
  • How to run a successful Kickstarter campaign [Old] – Mint

Book of the week: Did you enjoy Pete Comley’s guest article on the history of UK inflation on Monevator this week? Then don’t forget his new book, Inflation Tax, is now on sale.

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  1. Reader Ken notes that: “FT 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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