Thanks for having a look at our Blog this week about bad investment funds in Ireland, it promises to be a doozy! It won’t take more than 4 minutes to read but I sure hope it is actionable and impactful for you in your own wealth creation and preservation. This week I’ll share some insights on the following:

• Another specific example of the ridiculousness that is Investment Funds in Ireland charging silly fees for delivering absolutely terrible investment outcomes for retail investors like you & I
• What you can/could/should do if you are involved in these type of ‘all-picture & no-sound’ funds
• A quick market update for 2020 (it’ll be real short)
• A quick market prediction for 2021 (it’ll be even shorter)
• Confirmation that neither the aforementioned ‘update’ nor ‘prediction’ matter!

But first, because it’s been so long I wanted to share an Informed Decisions Business Update with you. You may or may not be interested but in the hope that it’s mildly so, here is what has been going on at Informed Decisions Financial Planning:

• September thru October is full-on period of existing Client Planning meetings. We meet every client for a proper ‘big picture’ meeting. I meet each of our core existing clients, listen to what is happening for them and their business/finances/lives, I give perspective on their overall plans, update their Financial Forecasts and help them to tweak what they/we are doing so that they stay on track to achieving their biggest financial life priorities. It’s a busy time for us but also the most enjoyable part of the work I do with clients who work with Informed Decisions. Doing this twice per year requires a lot of energy, investment and time from both clients & Informed Decisions, but it pays dividends in helping them achieve their goals and to feel confident on the journey – that’s the point!
• Siún (Client Services – Informed Decisions) is helping me with all scheduling, client events and administration – without her I’d be all at sea! This enables me to focus on doing what clients hire me to do for them – avoid mistakes and capitalise on opportunities in their investment and retirement planning.
• Overall, we are pretty-much at capacity of core clients as of the end of this year. In order to retain the service levels we provide we are keeping client numbers below 60 high-value and personal client relationships. I can see how one’s desire to grow bigger and bigger would lure an advice firm into hiring more and more advisors and open multiple offices etc. but that’s not what we’re about (at least not for now!).
• The Podcast Tribe experiment over the past 12 months was interesting and glad we did it. We raised and donated over €4k after (Stripe and Platform fees – I actually kinda like giving the Collisons money!) to three charities & we shared valuable insights to members. Some of the feedback from listeners blew me away to be honest- I had no idea it was so highly regarded! Having said that, I’m delighted to be back sharing our ideas, insights and interviews publicly and freely again, so the financial education we share is available to all again 🙂

Investment Market Summary for 2020:

We all know what a bad year 2020 was for many people on many fronts but from an investor’s perspective this is as complete a summary as I can muster;

‘In 2020, markets went up, markets went down, and then markets went up’

Paddy Delaney – Informed Decisions 2021

The dooms-dayers will say that my summary doesn’t portray the awfulness of the ‘declines’, but they’ll be slow to acknowledge that a proper passive Global Equity index was up +6% for the calendar year! See above. That 6% is exactly the annual growth rate most prudent planners assume (before fees, tax & inflation) in long term planning calculations for clients. Oh, if you owned the S&P 500 from Jan 1st 2020 to Dec 31st 2020 you saw calendar year returns of +17% with dividends reinvested.

Market Predictions for 2021 full year:

I believe it is important to make you aware (if you weren’t already!) that many investment firms try to attract new investors by pretending to know what the market or individual company stocks are going to go next. It has been widely acknowledged that these things are unknowable. Nobel Prize winner Daniel Kahneman of ‘Thinking, Fast and Slow’ fame has said:

There is general agreement among researchers that nearly all stock pickers, whether they know it or not – and few of them do – are playing a game of chance

Daniel Kahneman – Nobel Prize Winner

But yet we still see so many firms claim that they have developed a magical new way of determining what way markets are going, and the funny (not funny!) thing is that so many retail investors like you believe these firms and invest your cash with them. Then in 8 our of 10 cases you end up getting worse results than if you had chosen to simply invest passively and get the returns of the market.

Blog 153 of this little Blog spoke at length about the SPIVA report, a credible fact-based report that assess the performance of Active Fund Managers globally, against the Index. The results are eye-wateringly bad for Active Management as a whole. So with that context for my own Market Predictions for the full year 2021:

In the calendar year of 2021 the markets will have gone down, and the markets will have gone up, in a fairly random unknowable pattern, just as they have every other year for the past 100+ years

Paddy Delaney – Informed Decisions

We know markets will go up and down randomly in any one year but that as long term investors there is one key thing we will remember above all else. A globally diversified portfolio has actually gone up significantly in well over 90% of all 10-year rolling periods of history, and in 100% of all 15-year rolling periods of history. What the markets do in any single year is therefore irrelevant to our long term wealth creation and protection, provided we are structured and prepared. Read our Blog on how to prepare your pension for the next big crash here.

Rubbish Investment Funds in Ireland

The main event! As an Independent Financial Advice firm in Ireland Informed Decisions has no ties or obligations to any firm or any investment manager. We routinely publicly review and assess funds from the likes of Davy (Blog 137 for more on that one) and other main providers. We have a preference and have selected certain partners (Trustees, Platforms, Funds) based on the key aspects of performance, security, ease of use and fees. But as I constantly remind those partners, we can and will move if they cease to best the optimal solution for our clients!

It is probably in large part because of that independence that many of the people we currently work with have chosen to work with us. They have moved from firms that they usually felt no longer prioritised their interests.

One of the core ‘interests’ as investors surely has to be performance, right!? It is with that lens that I had a look recently at a firm that I had zero previous knowledge or experience with. They received media coverage lately due to a merger they recently completed. Gresham House, a UK-listed asset management group has recently completed the purchase of an Irish Investment firm, Appian Asset Management. They design and build actively-managed investment funds in Ireland that they sell to retail investors here basically. The firm is now known as Gresham House Ireland – it’s a name that sounds distinctly Dublin, and their website and people look nice, all giving off a distinctive ‘we are good at what we do and we’ll get better returns for you so come with us’ vibe. But do the numbers stack up??

Gresham House Ireland – Fund Performance:

We picked two of their funds (both actively managed), and the two that are most accurately assessed against an index approach.

• Gresham House Appian Global Small Companies Fund
• Gresham House Appian Global Dividend Growth Fund

We compare each of these against comparable Vanguard Index funds that are available in Ireland, domiciled here. We used Vanguard as the funds accurately reflect the strategy of the Gresham House funds we’re assessing.

Looking at the Global Dividend Growth Fund first. The fund sheet states that it holds large cap equity across the world and that it’s actively managed. The 30th Sept 2021 sheet states that cumulative 10 year growth has been 141% (not too shabby eh?) and that it invests in equity only (no ‘safe’ Bonds etc). Oh, and it has a 2 out of 5 Morningstar Rating. It was launched in May 2010. Bearing in mind this funds invests 100% in Global Equity it can be described as ‘Adventurous’ in regards to your appetite for volatility as an investor, equity is equity! How has it performed versus a simple buy-and-hold passive Global Equity Index that simply holds a proportionate % of the top 2,000 companies of the world? Not good. Per the graph below;

• Gresham House Appian Global Dividend Growth Fund Total Returns after fund fees: 133.95%
• Vanguard Global Stock Index Total Returns after fund fees: 268.13%

Wow, just Wow.

You can talk all you like about risk-adjusted returns and ‘our active strategy is that or will do this or that in future’ but both these funds invest 100% in Global Equity (individual companies across the world) and both funds have a high degree of volatility. It is comparing apples-n-apples. The biggest difference between the two (apart from the outcome for investors!) is that one is Actively Managed and the other in a Passive Index.

The fact is, had you invested €500k in Gresham House Appian Global Dividend Growth Fund in May 2010 you’d have a Gross pre-tax value of €1.1m now (which is a nice outcome). But had you invested €500k in the Vanguard Global Stock Index in May 2010 you’d have a Gross pre-tax value of €1.8m now, or €700k more than the Gresham House Appian Global Dividend Fund (which is an even nicer outcome right!?). That’s the tangible difference for investors between pure index investing and much of the Actively Managed brigade.

Paddy Delaney – Informed Decisions

What About the Gresham House Appian Global Small Companies Fund?

The fund sheet in this case states that it invests in small cap stocks globally and is again actively managed. The 30th Sept 2021 sheet states that cumulative 5 year growth has been 24%. It was launched in October 2012 so has no 10-year performance. No Morningstar Rating on this one. Again, as it invests 100% in Global Equity it can be described as ‘Adventurous’! How has the Small Cap fund performed versus a simple buy-and-hold passive Small Cap Equity Index that simply holds a proportionate % of the top Small Cap companies of the world? Again, not good. Per the graph below, since the fund started in 2012, to today;

• Gresham House Appian Global Small Companies Fund Total Returns after fund fees: 126.74%
• Vanguard Small Cap Index Total Returns after fund fees: 209.52%

Again, wow!

Had you invested €500k in Gresham House Appian Global Small Companies Fund in September 2012 you’d have a Gross pre-tax value of €1.1m now (which again is a nice outcome). But had you invested €500k in the Vanguard Global Small Cap Index at the same time you’d have a Gross pre-tax value of €1.5m now, or €400k more than the Gresham House Appian Small Cap Fund. Again, that is a significant and life-changing tangible difference for investors like you and I.

What About The Fees in Such Investment Funds in Ireland

The above data from Gresham House Appian and from the Vanguard is after the fund fees have been deducted. Again, herein lies a big difference!

Annual Management Charge:

Gresham House Appian Funds state on their site that the funds each carry a 1.5% Fund Fee. However, due to PRIIPS such firms now need to fully disclose the fees on their investments (if it’s not a pension!) by producing a Key Investor Document (KIDS) for each fund. These are available on their website;

Global Small Caps KID is here and Global Dividend KID is here.

The KID shows that the total all-in costs on the funds is closer to 2% every single year, just to access the funds – no advice, no planning, nothing else! Made up of:

Transaction Costs:

On the Small Cap the ‘transaction costs’ are noted as being 0.08% and on the Global Equity 0.37%

Other Recurring Costs:

On the Small Cap the ‘transaction costs’ are noted as being 1.71%

On the Global Equity fund it is noted as being 1.72%

So aside from the entry and exit charges, the annual total costs appear to be 1.79% on the Small Cap fund and 2.09% on the Global Equity Fund from Gresham House Ireland.

The KIDs also confirm that there are ‘One-Off Costs’:

Up to 3% Entry Costs (they take a full 3% of what you invest off the top as you invest) and up to 3% Exit Costs (again, they take up to 3% of what you take out as a cut on the way out), separate to the Annual Management Charge!

What Should You Do If You Are Invested In This Type of Investment Funds in Ireland:

We all know that you get nothing for nothing but if you are paying up to 3% entry fee, and up to 2% annual management fee purely for fund access you surely would expect that your money grow at least in line with the market in the 10-12 years that your investment funds has been in existence? This is another case of higher fees don’t correlate with better outcome for us investors.

If perhaps you are invested in these funds or similar what do you do? Well you can do one of the following;

• Sit tight and hope that the fund managers can somehow miraculously sort their s#it out
• Bury your head in the sand, pretend you never read this
• Continue to drink the cool-aid your fund manager offers you about ‘the tide will turn in our favour soon’ etc etc etc
• Move your investments/pensions to another fund provider

If you do consider the last option, be careful, here are my top 4 tips to keep in mind:

1. Make sure the new advisor/provider is offering real value to you. Don’t just jump to get a marginally lower fee or on the promise of better returns, there must be more in it for you than that
2. Mind that your existing provider doesn’t take 3% exit fee off you if you do do this – as we saw in Gresham House’s KID documents
3. Take your time and pick a firm, advisor, strategy that you are fully bought into and trust
4. Pick one that will ideally offer long term guidance and planning, and not access to ‘the very best funds for 2021’ or some such nonsense – if you do you’ll find yourself in the same boat again in a couple of years, and it’s a pure hassle for everyone involved

Conclusion

Apparently, Appian of Alexandria was a bit of a lobbyist in the Roman political scene back in the early ADs! I’m not a lobbyist for Active Management nor for Passive. We don’t have a fascination or hell-bent loyalty to Vanguard or Blackrock or any fund manager. Nor do we ‘have it out’ for any fund manager. We seek truth and clarity and results.

We do have a strong preference in planning the future wealth of valued clients, and our own, on using the route that works consistently and has been proven. We’ll rely on the one that stacks-up and which has delivered and continues to deliver optimal outcomes. Simple as that. I believe all investors should do likewise. Why invest in bad investment funds in Ireland when there is really no need to?

You have my best wishes. Thanks for reading.

Paddy Delaney QFA RPA APA

The above data was correct at time of publishing, and was based on figures made available by the various providers, bad investment funds and FE Analytics. See our disclaimer below – you can always get back less than you invest and past performance is apparently not a reliable guide for future performance – but you knew that already!