Recently, Scott Pape, author of “The Barefoot Investor” series of books, criticised Hostplus’ decision to amend its product disclosure statement. He said the insertion of a clause which allows Hostplus funds to “suspend or restrict applications, switches, redemption and withdrawal requests” was tantamount to restricting members’ ability to leave a Hostplus fund. Hostplus said the changes were purely administrative.
Pape has previously argued the merits of investing in low-cost index funds, noting Warren Buffet is a proponent of such an approach. He has also criticised funds which invest in unlisted assets, netting high fees for investment managers.
Another of his criticisms was the tendency of some funds to invest in unlisted assets which are not easy to value because they are not traded on exchanges. However, it worth noting index funds themselves are typically not listed on any exchange. It is appropriate that funds like Hostplus invest in a range of asset classes consistent with their projected liabilities, including unlisted assets. It is unfair to criticise a fund’s strategy when the duration of its liabilities suddenly changes by government decree.
Look at the Future Fund’s asset allocation; it has a high proportion of unlisted assets and its performance is widely acclaimed. How would it fare with an “out of the blue” government call on its assets, with investors’ redemptions expected to be settled almost immediately?
Perhaps Pape suffers from the misconception that index funds fees are all low. Without wishing to single out Vanguard, a manager known for its suite of index funds, its Cash Fund has a 0.7% per annum management fee, more than 35%* of the fund’s gross return. “Low” is a relative concept.