Readings: Fund management, Currency ETFs, Indian outsourcing
- Economist: Money for old hope
Imagine a business in which other people hand you their money to look after and pay you handsomely for doing so. Even better, your fees go up every year, even if you are hopeless at the job. It sounds perfect.
That business exists. It is called fund management. Charley Ellis, a veteran observer, explains that fees in the industry tend to grow at around 15% a year because markets rise by an average of 8% and savings grow by 5-6%.
. . . most fund managers do not compete on price. Instead, they persuade their clients to select their funds on the basis of past performance, even though there is little evidence to show that this is a good predictor of future success.
Nor can investors be sure that the intermediaries who sell the funds—brokers, advisers and bankers—will steer them in the right direction. These middlemen often get a cut of the fund managers’ fees, so they have little interest in recommending low-cost alternatives.
And yet, ULIPs are a million times more popular than index ETFs. It’s a tragedy!
- Index Universe: Investors Join Traders In ‘Perfect Storm’ For Currency ETFs
The combination of more economists forecasting a prolonged weakening in the greenback and record-high price gains are providing both fundamental and technical analysts with a field day.
The result is something akin to a perfect storm in drawing attention to a rather new form of ETF investing, says Joe Baker, a longtime advisor at Alcus Financial Group in Mt. Pleasant, S.C.
“I’ve never seen this much interest in currency ETFs before,” he said with a laugh. “There’s just a pile of money coming into these funds now.”
Currency ETFs as a whole make up about 5% of the firm’s long-term-oriented portfolios. Some more aggressive traders prefer to use up to 10% of their total assets in various currency ETFs.
. . . wages are rising in India. The cost advantage for offshoring to India used to be at least 1:6. Today, it is at best 1:3. Attrition is scary. Jobs that are low value-added and easily automatable should and will disappear over the next decade.
As the 1:3 cost structure becomes 1:1.5, it will soon become inefficient to use Indian labor. Why not Oklahoma or British Columbia? For many Europeans, Eastern Europe has already become more compelling than India. The pure labor arbitrage equation will no longer balance.
Assuming a 15% year-to-year salary hike rate, and a 2007 cost advantage of 1:3 in favor of India, if U.S. wages remain constant, India’s cost advantage disappears by 2015.
Catchy headline. “Death” unlikely. Wonder if the author has checked the latest wage differential for employees in legal processing, equity research, etc. Talking about 7 years hence (2015), perhaps we should check on what people were predicting 7 years ago. Oh well - gotta keep churning *something* out for consumption. 
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