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Holly's Blog: Cheap pensions and stubbed out fags

6 Dec, 2019

News out this week that US giant Vanguard will roll out its SIPP (Self Invested Personal Pension) in the enigmatic timeframe of ‘early 2020’. Let's take a look...

News out this week that US giant Vanguard will roll out its SIPP (Self Invested Personal Pension) in the enigmatic timeframe of ‘early 2020’. With an annual administration fee of 0.15% (which is capped at a maximum £375 a year, or everything over £250,000 has no admin fee), this is basically cheap. (Although the marketing will probably say ‘low-cost’!) Add in their ready-made one-stop shop investment solution called the ‘LifeStrategy’ range and you’re looking at total annual costs of about 0.37%. (0.15% for pension admin and 0.22% for managing the investments). That’s a super low £37 on £10,000.

So far, so good. Competitors will be quaking in their boots as this does throw a serious gauntlet down. Fellow US darling RobinHood – pioneer of fee-free trading – is also heading to the UK in ‘early 2020’. I think we have to expect competitors to respond so watch this space.

Problem with passive?

There are many great things to say about Vanguard which is a fantastic business. They are my ‘go to’ suggestion for many first-time, or busy, investors. Perhaps then I might offer one contrarian view which I think is their biggest challenge to address in coming years.

Vanguard is known for its ‘passive’ management. This means using computers to run the decision-making and transactions – they buy the biggest companies or back the biggest investments in any geography or sector, regardless of human opinion. If HSBC is 6% of the FTSE100, then your FTSE 100 passive fund will have 6% of your money in HSBC. Regardless of any opinion, headlines or sentiment. No posh expensive humans to pay = cheaper products.

Here’s the challenge. Regular readers will have heard me talk about ESG (environmental, social and governance factors) – the new marketing buzzword amongst asset managers who are all tripping over themselves to say that this is in their DNA and they’ve been doing this since time began. (To be fair – a few have.) But active managers who exercise discretion have a huge role to play here. They can turn up at company meetings, as part owners, and vote against directors. They can attempt to force change because they have the ultimate weapon of being able to sell. Money talks.

As sustainable investing becomes more nuanced and more satisfactory than simply saying “we’re not buying nasty companies” but “we are actively buying and supporting future-focussed businesses” – then passive investing looks flawed in its ability to play. To dig into ESG factors properly – especially in less developed markets – is not something where data alone can do a good enough job today. This needs aforementioned posh expensive humans.

Choking Phillip Morris

There is, I think, one sector which has no place in investment portfolios today. Tobacco. The hugely admirable Dr Rachael Melsom sees patients as her day job and runs the UK and Europe arm of charity Tobacco Free Portfolios in her ‘spare time’. She spoke at an industry event we ran this week.

The health stuff is obvious. It kills 8 million people a year. And forget vaping as the way forward - there are now 48 reported vaping-related deaths. But that aside there’s regulation and litigation risk everywhere you look. Brazil is suing British American Tobacco and Philip Morris, after similar class actions with $17 billion damages were upheld in Canada this year. (Can you imagine being sued by a country!!) Ciggie butts are the largest incidence of single use plastic pollutants in oceans. Child labour is endemic – kids as young as 14 are working in US tobacco fields for less than $8 an hour. Tobacco violates 14 of the 17 UN Sustainable Development Goals. Repeat to fade.

Leave the bleeding heart stuff to one side – it’s very hard to see how anyone can make a case for this being a good investment. I don’t want my money to back these dying companies and I want to invest with a fund manager who puts my money where my mouth is. Disappointingly, there are very few who have come out with an active decision to get rid of tobacco across the board– NEST (the Government’s low-cost pension provider for the workplace market) is an interesting exception. I wonder who will be the first big brand UK fund manager to stub this out?

Circling back around to my earlier comments, passive houses cannot by definition lead the charge in sustainable investing and using the collective clout of investors’ money to force change. It will be super interesting to see how we all vote with our feet. Low-cost bundles of investments? Or curated higher-cost investment parcels designed to back sustainable businesses? What do you think? Let us know in the comments below.

Have a cracking weekend everyone.


Thanks to our sponsors at this week’s event. Speakers included Lewis who runs the Hermes Global Equity ESG fund. Euan who heads up stewardship globally for Aberdeen Standard Investments. And Amy who is the MD of Close Brothers Asset Management. Thank you all.