Individual investors have been encouraged to not seek alpha, the returns from asset manager skill, but rather look at an index tracker type fund that charges lower fees, and provides lower returns, with relatively lower risk, known as beta, or the returns generated by simply being in the stock market.
“Fund manager skill is a fluke,” says Tendai Musikavanhu, MD of Umbono Fund managers, “indexation and beta funds are the best way forward.”
Hugh Cutler, the MD and co-head of strategic solutions group with Barclays Global Investors in the UK, contends that in a closed stock market, as most stock exchanges in the world are, there are buyers and sellers, and neither party is a winner. By definition there are no winners, says Cutler, besides the brokers who charge fees and perhaps the government, which charges a tax on the transaction.
Speaking at the Terrapin asset allocation summit in Johannesburg, Cutler said that in terms of pension funds, trustees must be very clear that they have access to the leading asset managers, who have a clear and provable track record over an extended period.
The issue with asset manager performance track records is that the markets and assets classes are continuously changing, says Cutler, added to which the split between alpha and beta returns is blurred, and not readily identifiable.
Dennis Hurrell, chairman of the investment committee of the R25bn Telkom retirement fund, says that they (Telkom) are tentatively investing in fundamental index tracker funds offshore, and are seriously considering investing in the local fundamental index tracking sector, which is still in its infancy with two offerings, via Umbono Fund Managers and the other from Plexus.