Do fund managers really do a good job?

Would someone please offer to donate $1 to me every time that i encounter something along the lines of “managed funds are a waste of time”? It could save me an awful lot of time and energy, and would very quickly fund my eventual retirement to a Tibetan monastery, where i would sit in bemused silence – only occasionally venturing out onto the windswept rooftop to set up my satellite connection and issue another musings post…

But i digress…

The current “mood” of financial commentary is suggestive of fund managers being a waste of time, and financial planners being in evil cahoots with these rascally fellows in an attempt to take your money, by pretending to do something that you yourself could do just as well. After all, how hard can it be to invest? Everyone has stories of the person-next-door who invested $10,000 into an unknown company and made a gozillion dollars. You don’t even have to be clever – you just buy a handful of something called “bluechips” and that way you don’t pay fund managers and you don’t pay financial planners. Or maybe skip listed investments altogether, and just stick to property or gold or collectables? We will cover the fullness of managed funds and what they can and cannot do for investors at a later stage, along with a comparison of various asset classes and how they are used or not used in a professionally packaged portfolio (after all, the best return in the last 5 years or so would have been to simply buy a spare property and some gold and keep the rest of your money in cash so who needs financial planners or managed funds anyway…?). However, for the moment we are looking at managed funds, and whether it is an easy job or something just a little bit harder than current media commentary would have you think.

The point of this note is to issue a little challenge… How about taking a moment to set up your own portfolio of international shares, and see how you would go as a fund manager?

Here’s how you could do it. Go to the website of the Financial Times – www.ft.com – and register (it’s free). Once you register, you will be able to set up a ‘pretend’ portfolio of paper investments, selecting from shares, managed funds and exchange traded funds (ETF’s) from all over the world. In addition, you can add cash and all of these assets can be held in any currency you like. For the sake of comparison – try to make sure that your total amount invested adds up to around $200,000 (say, plus or minus $2,000). We are going to ignore purchase and transaction costs – because that’s too much work, no fun, and scary.

For the sake of a bit of fun, i’ve gone and done just that. Mind you, i’m the cynic in this exercise and so i have simply chosen a few areas that are of interest to me. It is pretend money, after all. You could put more or less effort into your own portfolio setup, depending on how seriously you want to have a go at this little idea.

If you could send me in a copy of the portfolio that you have set up then i’ll keep a note and you can send me updates over time. We cannot keep the suspense going forever, so let’s compare notes in say, one months time. And in one years time.

GO ON, give it a go! This is actually one of the best ways of getting a handle on the world of global investment.

If you get a little stuck for ideas, you could go to the Corporate Information website, where they have a list of the Top 100 global companies or the Global Finance website, where they have a series of lists that rank companies according to different criteria. If translating foreign currency into Australian dollars is a hassle, you could go to this website to convert all your purchases from the native currency to Australian.

Oh, and by way of disclosure – i’ve been too busy with client files to bother setting up some cushy arrangement where the Financial Times sends me money when you join. I’ve simply chosen that site because i’m quite impressed by the scale of the global options.

Naturally, you will have to pay extreme attention to the Great Warnings and Disclaimers, and note that even though we are looking at individual positions and investments, this is JUST A GAME, and nothing said or done is to be construed as personal investment advice!