Hawksmoor Investment Management is the latest firm to say that it will bear the cost of third party research, although its head of research Jim Wood-Smith has questioned the industry trend.
‘Hawksmoor is part of the growing band of investment and fund managers that will pay for research directly from our own coffers. That is seen to be the ‘right’ thing to do,’ he wrote in a note.
‘But why? Do investors in a fund really believe that their managers should not have research? If the investors do not want to pay to give the managers the tools they need to do the job, then why have they invested in the first place? What about a desk? Or a biro? Or a telephone?’
Wood-Smith (pictured) called for a fund to be judged on its performance after charges at which point investors can vote to stay or leave, but said that managers need the ‘best tools to do the job’ to deliver.
‘That though is not the way it is going to be done. Research costs are being borne by the fund management companies. The same applies to the discretionary fund managers, where we have a separate budget, paid for out of Hawksmoor’s cash flows, to buy the broker research that we need in addition to our own endeavours,’ he said.
‘Some call it progress, others the rush to the lowest common denominator. Never mind though, eh. The solution is to go passive. Buy a tracker and the fund needs no research. It does not care who the constituents are, just a list of names and weightings. The good, the bad, the fraudulent, the polluters. No matter, just follow the index.’
Wood-Smith cited the dotcom boom as an example, noting that the technology, media and telecoms sectors accounted for close to half of the index going into the crash. He also pointed to a number of high profile stock blow-ups, including Baltimore Securities, which was taken over for just £19 million in 2004 after being valued at £7 billion four years earlier.
‘That, ladies and gentlemen, is the sort of share that your zero cost index tracker buys without caring. In fact, the more the price goes up relative to ‘the market’, the more your tracker holds. What a brilliant wheeze,’ he added.
Albeit begrudgingly, Hawksmoor has become the latest investment firm to say it will not pass on the cost of research to investors when Mifid II’s unbundling requirements come into force in January. Others include Woodford Investment Management, M&G and Vanguard.