Not all investment fees are equal
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Over the last decade, there’s been an increased vocalisation of investors’ concerns about the cost associated with investing. This concern has stemmed partly from the growing income disparity evident in society, which was epitomised by the Occupy Wall Street movement which started in Manhattan in September 2011. The Occupy movement sought to highlight the inequality in society, but unfortunately six years later has all but disappeared. The tragedy is that the extent of income disparity remains a socio-economic issue which requires resolution and may well have been the undercurrent which has been surfed by populist political agendas in the last year. A further driver of this investor focus on cost has been the dearth of excess return or alpha amongst active managers. As a result investors responded by moving “en masse” into passive beta products, which offered market exposure at a discount to traditional active management fees. Since this initial response, passive ETF (exchange traded fund) flows have exploded. Deutsche Bank estimates that global ETF AUM has increased to $3.5trn in 2016 from just over $500m in 2006 (See chart below).