Pictet slams mutual fund research
Stephen Barber, group managing director and head of communications at Pictet, has slammed research by adviser My Private Banking, which says nearly 80% of equity mutual funds sponsored by banks with large wealth businesses have failed to beat their benchmarks over five years.
According to Barber: "The evaluation is grossly unrepresentative. These are a number of cases where the wrong benchmark is used. Such inconsistencies and the extremely small sample size makes this 'research' paper totally meaningless."
In Pictet's case, a mere three mutual funds are represented. The money they manage is just 3.4% of equity funds managed by Pictet totalling $36.2bn. Their average performance is distorted by the bad performance of Pictet's Asian ex-Japan fund, which was 35% below its benchmark over five years.
My Private Banking's table of mutual funds performances only uses two funds in four out of thirteen banks covered and three funds in five of them.
However, Steffen Binder, managing director of My Private Banking, said his firm chose these funds because they covered core US, European, Asian and global universes: "These regions are the building blocks for client portfolios. They are not esoteric."
He said his researchers have carried out "mystery shopping" tests of portfolios offered by private bankers, and discovered that 30% of them still comprise in-house funds, despite the increased use of open architecture. He said mutual funds were often used in private client portfolios: "The total sums managed by the funds we studied total $20bn."
He said: "We have found that private banks are never willing to disclose the performance of client portfolios and we believe that our analysis makes a start to this process, in terms of achieving greater transparency."
He said expense ratios play a role in holding back performance. Global total expense ratios average 1.8% a year. The highest is UBS' Asian equity fund which costs 2.4%.
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