Like a number of stock market newsletter writers, Fat
Prophets has been very keen to leverage their brand into active money
management.
As we well know, the high fees from money management in
this country can turn mediocre investors into multi-millionaires in no time at
all and as such, it’s a very lucrative field.
Regular readers of this blog will be very well aware of
my utter disdain for newsletter writers.
As I’ve said time and time again, no one (and I mean no
one) who has a genuine talent for picking stocks is going to sell them to you
in a newsletter. This patently obvious fact is lost on many people.
Writing newsletters is a highly profitable business, it
requires very little capital investment, very few staff and very little in the
way of genuine ability. What is does require is good marketing and most of them
are masters of that.
People
who subscribe to stock market newsletters are (by default) poor investors.
Good investors don’t have any use for “tip sheets”.
It therefore follows that if the newsletter writer
wishes to get involved in money management, they have a captive audience of (not
particularly knowledgeable) subscribers to tap for funds.
Fat Prophets was pulled up by the regulator in 2002 after using potentially misleading performance figures in its advertising and was required to engage an independent expert to devise a methodology for measuring performance.
You should note that many newsletter writers show theoretical returns based on their past recommendations (that have not been achieved in reality). This in itself is highly misleading.
Do you want to invest with people who do that and then get in trouble with the regulator?
May be you do, but before you do, you may want to read some of the very poor reviews that customers of Fat Prophets have written here:
http://www.productreview.com.au/p/fat-prophets.html
Which brings us to the new Fat Prophets Global Contrarian fund. According to the Australian Financial Review:
Fat Prophets Global Contrarian fund charges investors a 1.25 per cent management fee and 20 per cent of any positive performance per quarter, subject to a high-water mark.
The above figures are actually exclusive of GST, so the investor will actually be paying a 1.375% management fee and 22% for “positive performance”.
Now just pause for a minute to digest that and then read this excerpt from the same Australian Financial Review article:
The listed investment company shares little with a previous listed venture from Fat Prophets that focused on Australian equities. After a period of under-performance the fund was taken over by Merricks Capital and was later bought by Investsmart Group, the owner of Eureka Report and Intelligent Investor.
In other words, Fat Prophets has had a go at this listed investment company caper before and failed. So they weren’t “prophets” after all!
Never mind, come back with a different vehicle charging high fees and see if anyone bites. And bite they did! One thing you can say about the Australian market is that there is never any shortage of people willing to “believe”.
In my opinion, the fees are very high for the management you are getting in this fund.
And I couldn’t care less if Angus Geddes has put $1m of his own money in – so what? He can put every cent he has into the fund, that doesn’t mean for one second that the fund is going to perform well. In fact, the fee structure of the fund almost guarantees that an investor will (ultimately) get a sub-par return in comparison with the major indices.
In his recent letter to Berkshire Hathaway shareholders, Warren Buffett explained beautifully why the funds management industry cannot mathematically outperform a low-cost index fund over any reasonable period of time. And yet we have scores of mindless people putting their faith in highly paid money managers to do exactly that.
The increase in equity markets since Donald Trump’s election has seen a plethora of these types of vehicles listing on the ASX. I have been contacted to invest in many of them and to all of them I have said a very quick “no thanks”. And that’s because none of the vendors have any particular insights or skills – they just want to make a profit from me through management fees. I’d rather give the money to a low-cost index fund manager any day of the week.
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