Last week, I conducted a one-off portfolio review for a client—a highly experienced and accomplished self-directed investor. Despite their expertise, they wanted a fresh independent set of eyes to identify any blind spots and challenge their assumptions. This kind of portfolio analysis is one of my favourite parts of the job!

When I reviewed their portfolio, this client had played the tech theme way better than most. They preferred a mix of ETFs, direct shares, and managed funds. However, I quickly noticed that three of their investments—an index ETF and two supposedly “active” managed funds—were, in reality, nearly identical. When I ran the correlations, they were absurdly close to 1. A quick glance at the underlying holdings confirmed what the numbers were telling me—they were essentially the same portfolio.

Nothing frustrates me more than paying active management fees for what is, in essence, index performance. The fees on these funds were hefty, exceeding 1.2%, with one even charging a chunky relative performance fee. And as my teenage daughter would say, nothing gives me the ick quite like a relative performance fee—where you end up paying a fee when an active manager loses you money, just because they lost you less than the index.

The upshot of all of this is that these so-called “active” funds weren’t adding value—they were simply mirroring the index at a much higher cost. My recommendation was straightforward: if you want to keep this exposure, consolidate into a single index ETF. Not only would this simplify portfolio management, but it would also significantly reduce fees.

Having someone independent to look over your portfolio is always a good idea. I love being that fresh set of eyes for people. It’s so easy to become wedded to your portfolio and develop blind spots. A fresh perspective can help ensure your portfolio remains optimised and that you’re not unknowingly taking unnecessary risks.

If you would like a one-off review of your portfolio, please contact me here.

Kind regards,

Shelley Marsh
Outsourced Chief Investment Officer (OCIO) & Founder
Wealth Differently

General Advice Warning: Wealth Differently holds an Australian Financial Services licence to provide services to wholesale clients only. The information on this website is only for persons who are wholesale clients as per s761G of the Corporations Act. The information includes general advice which does not consider your particular circumstances and you should seek advice from Wealth Differently who can consider if the strategies and products are right for you. You should also understand that past performance is often not a reliable indicator of future performance and should not be solely relied upon to make investment decisions.

Wealth Differently Pty Ltd AFSL 547820.