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: This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. It does not represent and is not intended to be personal advice. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. We strongly suggest that you seek professional financial advice before acting.
Wealth Differently Pty Ltd AFSL 547820.
