Sliced Bread

You may sometimes listen to Sliced Bread on Radio 4, I dip in occasionally.

If you don’t know what I’m talking about the presenter asks experts for their opinion on products, etc. Here are a few:

Which pots and pans are best for your kitchen?
Are expensive face creams worth the money?
Can fitness trackers actually help you to get fit?
Five reasons why these business ideas went wrong.
Should you buy a real or artificial Christmas tree?

I’d like to know if investing in trackers and ETFs is a better strategy than buying managed funds. The obvious advantage of the former is low costs, so what it comes down to is are fund managers able to beat the indices by a big enough margin to cover their fee? Fees have dropped dramatically in recent years, unless you were a client of St James’s Place, but when all is said and done the Total Expense Ratio is usually a bit more than 1%.

The next consideration is the flexibility of a managed fund; the ability to migrate to bonds and gold when the weather looks stormy. McInroy & Wood and Personal Assets are good at this. M&W recently sold their holding in gold profitably. Here is how they have allocated their funds now.

McInroy & Wood Balanced Fund, 31st March 2024.
Personal Assets Trust, 31st March 2024.

If you don’t want to worry about making investment choices both these funds offer a reliable, maybe unexciting, one stop shop. Over the last ten years M&W have delivered  70% and PAT 66% so say 7% annually over a tricky period.

I read something interesting in FTWeekend by Stuart Kirk – the Rule of 72. It tells you how long it will take you to double your money. 72 divided by 7 = 10.3. So in about ten years you will double your money and, since we don’t live in the Weimar Republic a hundred years ago, that should comfortably exceed inflation.

Another benefit of managed funds is exposure to private equity where returns are often most gratifying, but it is an opaque market so don’t try it at home. Caledonia Investments and RIT Capital Partners allocate around a third of their assets to private equity and deliver pretty good long term results.

A disadvantage of my investment style is that it is long term. If I needed suddenly to liquidate my holdings it could well be at a disastrous moment. Nevertheless I don’t think trackers and ETFs are the best thing since sliced bread.

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