Fund analysis issues
There is no shortage of fund coverage. However, it is also often biased, complex and of questionable quality. People are often left befuddled when it comes to choosing funds.
Fund analysis services
Fund analysis services are generally quite good (Morningstar etc). However, they appear to talk a different language to the rest of us (i.e. Sharpe ratio).
Bias - Many fund analysis services accept advertising and other payments from fund managers.
Analysis - Fund analysis services don’t have an investment approach. They may rate a mining fund highly even if mining is a poor long-term place to invest. Funds are also either categorized as growth or value when quality may be more important.
The analysis that fund platforms offer appears to add value but there are also a number of issues.
Bias - Fund platforms appear to focus on open-ended funds that will generate a platform fee. While a few open-ended funds have generated strong results they tend to underperform in aggregate.
Platforms tend to avoid Investment Trusts and listed passive funds despite their strong track records.Fund platforms are increasingly pushing their own funds which makes them less impartial.
The largest UK consumer platform is able to negotiate discounts on funds. These funds are then likely to be used as a marketing tool and to justify the platform fee. Funds that don't offer discounts can achieve strong results i.e. Fundsmith Equity Fund.
Analysis - Fund platforms appear to be keen to make safe recommendations. For example, Neil Woodford was a well established fund manager with a long track record. He was therefore pushed forward as a safe choice despite a shift in his strategy.
Bias - The financial media survives to a large extent on financial services industry advertising. Some media outlets organize events for fund managers to meet their readers.
Exclusive interviews and lively content help sell a product. This can make it more difficult to write critical analysis. The best publications should be able to be independent and maintain a critical eye.
The financial media also tends to be drawn towards personalities. One leading UK publication would often interview a well-known head fund manager who made great copy but generated poor results.
Analysis - Little consideration appears to be given to the stocks that funds hold. There is also little differentiation between the funds that have outperformed by taking significant risk and those that haven't.
Media headlines appear to exacerbate the trend of people buying into the market at the top and selling at the bottom. This also applies to sector funds that go through boom and bust cycles.