“CreditEase, one of China’s biggest peer-to-peer lenders, has set itself a Herculean task for the next 10 years: taming the country’s notoriously volatile retail investors by introducing them to the idea of portfolio management.
The typical household’s approach to wealth management was “to throw investment opportunities together, so your overall portfolio structure is all over the shop”, said Tang Ning, chief executive.”
- ‘Robo-advisers look to tame China’s retail investors’ by Yuan Yang, The Financial Times, 30 January 2017.
Successful investing involves having an edge. If you do not know what your edge is, you do not have one. Tang Ning’s observation above rings true; there are doubtless many investors who, in the absence of a general strategy, have accumulated a portfolio of sorts more or less randomly on the back of colliding haphazardly over time with motley financial opportunities, some of which have somehow appealed. The financial media clearly play a role in bombarding their users with arbitrary investment stimuli.
Robo-advice may be an improvement on random investing, but it seems to solve one problem (the presumed high cost of investment provision) by creating another (passive investing guarantees mediocre returns, or the market average return, less the cost of fees).
But there is another, more insidious, problem with passive investing, exemplified by the looming flotation of the owner of Snapchat. Snap’s IPO offers the hardly alluring prospect of a share class with no voting rights at all. Individual investors are of course welcome to pour their money down whichever drains they choose. But the rise of low cost ETFs – alongside the already substantial numbers of index-trackers, explicit or otherwise – means that there will be plenty of institutional investors obliged to follow them; the Financial Times cites Anne Sheehan, the head of corporate governance at Calstrs, the California teachers’ pension fund, who points out that many benchmark-following funds will be forced to own Snap once it is included in stock market indices, whether they want to or not. Come to ETFs for the focus on low cost; stay for the guarantee of exposure to low quality assets.
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