Our content this month are as follows:-

• Stop Press
• Books We Have Read
• Awards for Index Clients
• Quote of the Month

Lots of commentary and interesting information from the press this month so we are devoting quite a lot of space to it. The great news for Index clients is that everything you are currently reading in the newspapers endorses the decision you made to invest in low-cost, institutional grade, asset class and geographically diversified portfolios based upon the most respected research and not upon the sales and marketing hype that the investment industry is so good at. So let us start with a look at:-

Charges

In the Sunday Telegraph of 4 February 2007, Paul Farrow, the Money Editor noted that "many of Britain's biggest investment houses have been raising the annual charges on some of their most popular funds over recent times." He went on to point out that a recent survey by Money Marketing had discovered that almost 40 fund management groups now have annual charges of 1.75% per annum on many of their funds, as well of course is the usual upfront fees. Further on in the article he pointed out that fund fees have been rising inexorably, as well as their counterparts Total Expense Ratios. As Mr Farrow said in his article it is difficult to see the justification for these charges since "Most funds fail investors with their performance year in year out."

Fund managers seem to be remarkably blasé about this and Richard Muckart of Premier Fund Managers, who was quoted in Money Marketing on the 8th February said "We charge the market rate for the funds in our range. The headlines show that 1.5 percent is now history for a lot of fund managers." When you consider that Index clients purchase monitoring, rebalancing, wealth management, management fees and wrapper charges for less than the annual management charge for a single fund we are reassured that we are offering our clients a total value proposition.

Commissions

One of the reasons for increasing charges may be the hefty commissions fund managers are offering to old-style financial advisers. Investment Advisor of the 22 January 2007 carried a small article about Jupiter and its increased commission deal to IFAs. In order to attract more Isa business they are prepared to pay intermediaries 4.25% commission on investments into 26 of their funds from the first of February. I wonder who will be paying the cost of these increased payments. Jupiter are not the only culprits of course and many fund groups employ similar tactics around this time of the year including New Star (4.5%) and Norwich Union (4%) (Investment Advisor, 19 February 2007). Our fee-based approach and refusal to accept commission from fund managers means costs to clients are kept extremely low.

Dealing

Among the hidden costs of every actively managed fund are dealing costs. These are the costs incurred by all investors when securities are bought and sold and generally the higher the turnover of more expensive the fund. Research from Fitzrovia the respected analyst reports that average portfolio turnover for managed equity funds is as follows:-

St James Place 37.10%

Schroders 48.6%

Barclays 60.2%

UBS 62.9%

Standard Life 72.3%

Fidelity 85.1%

Threadneedle 107.7%

Remember these are average figures and many of the above will have funds with much higher turnover levels than the average. For the record, Dimensional's average is the lowest of them all at 4.8%.

Multi Manager

Manager of manager and fund of funds are the latest phenomena to sweep the investment advisory world. These purport to find the best performing managers and put them together in a portfolio. Without going into the difference between the two their major defining feature is that they add another level of charges to the whole proposition and total charges to clients have been estimated at between 2.73% per annum and 3.5% per annum. In Investment Week of 12 February 2007 it was revealed that there are now 187 multi manager funds -- how long before we have a "manager of manager of managers fund!

Asset Allocation

The Daily Telegraph of February 16, 2007 carried an article headlined "If it's small and out of favour, fill your boots, you are onto a real returns winner." Gratifyingly for us this is a report about research carried out by ABN Amro and the London Business School which concludes that small companies and value companies deliver higher returns than the growth stocks. Those of you alert to such things will realise that this simply confirms the findings of Gene Fama and Kenneth French first published in 1992! This is why all of our clients will find a UK Value fund, a UK Small Companies Fund and International Value and International Small Companies Funds within their portfolios, with Emerging Markets Value to be added this year. Congratulate yourselves for being 15 years ahead of the game in this country. So good for The Telegraph.

Unfortunately, the very next day, The Telegraph (17 February 2007) blotted its copybook with the headline in its Your Money section "Stock up on Household Names", subtitled "Why blue chips rock". There followed the worst kind of market timing hype with quotes from self-interested fund managers and IFAs plugging expensive large growth funds on the basis that if medium and small companies have done well over the past few years then it must be the turn of large growth stocks! What a pity they cannot advocate the benefits of asset class and geographical diversification instead, but then none of them appear to know much about that.

Structured Products

In the Financial Times of 19 February 2007, the front page of the fund management supplement carried the headline "No free lunch in downside protection". This was a report on research from Barclays Capital which concluded that Structured Products which aim to limit the downside risk of equity investing are a complete waste of time. Tim Bond of Barclays Capital commented, "There there has been a big growth in strategies where you try and offset or dampen down negative volatility in your equity portfolio. This can seem very appealing, particularly when you have a regulator breathing down your neck. However, over the long run this does not work. It will likely eliminate the point of earning equities, which is their higher return." This research combined with additional work from ABN Amro and the London Business School concluded that not only are these products expensive but they can eliminate virtually all the return investors might otherwise expect from market investments.

You know we do not like to say we told you so and modesty should forbid us from enclosing a copy of Noel's article of 1 May 2006, which appeared in Investment Adviser (a Financial Times publication!) pointing out that structured products are a complete waste of time and should be avoided! Noel's article is, of course, attached.

This month’s book recommendation is "The Best Investment Advice I Ever Received" by Liz Claman, an American journalist. It contains words of wisdom from many famous investment figures and a common thread is diversification and asset allocation. It is also notable for pointing out that Warren Buffett is not an investor, but a purchaser of companies which he then ensures are extremely well-managed. Our favourite quote? "Attempts to predict movements of the stock market in order to profit therefrom is a long-term failure process.”, Robert A Olstein, page 153.

The book is readily available at bookstores and Amazon, but if you have any difficulty finding it please contact jayne@indexfundadvisors.co.uk.

Featured in the Birmingham Post, 22 February 2007, Index client Robert Simmons, of Harper and Simmons, was presented with the Birmingham Post Business award. Robert was surprised that his firm had been recognised in such away, his acceptance speech was short, but spoke volumes about the work ethic. “We are one of the quiet little businesses just getting on with things,” he said. This approach of, “just getting on with things” has helped make the Redditch based firm a real success story.

thebestof Wins E-Company of the Year

thebestof, the successful online business directory and community website franchise, has been voted the best e-Company of the Year at the Sharp Edge Awards.

Almost 500 companies vied for the top slots at the Awards with thebestof beating off new media stars, Viagogo.com and Mydeo.com to become the online business of the year.

thebestof CEO and Index client Nigel Botterill commented: “We are really thrilled to win this award and receive this recognition. There are lots of exciting things happening in the online space, so to be considered the best e-business in the UK by such a prestigious panel of business gurus such as René Carayol - one of the world’s top authorities on e-commerce and the new economy - is a huge accolade and endorsement for what we’re doing.”

To find out more visit www.getthebestof.co.uk or call 0121 765 5556

"Not everything that counts can be counted and not everything that can be counted counts."

- Albert Einstein