Pfäffikon SZ, Switzerland – The leading role for the start of international trade history is attributable to the United East Indian Company (VOC). In 1602, the VOC was the first company in Amsterdam to go public and is thus the founder of the first stock exchange. However, the base of investing in global stock markets is increasingly abandoned. In 2018, the EU is setting up a European uniformity with MIFID 2.
Recently I heard on the Swiss radio that one of the Cantonal banks had researched the structure of the Swiss economy. The result was that as many as two-thirds of the Swiss economy is carried by relatively small family businesses. Of course, there are also larger ones like the famous Victorinox located in Schwyz. It is remarkable that these family businesses are very well-capitalized and, therefore, are better able to roll out successfully a long-term strategy. Switzerland also has several market listings of small companies that are very interesting to you as an investor; this aside.
In 2018, MIFID 2 sees the life of day. MIFID 2 should ensure that the investing client is assisted transparently and cheaply. However, MIFID 2 is a blessing for companies who do not need this regulated imposed aid at all. The customer is more or less forced to choose cheap and brainless products such as ETFs or index trackers. Direct research is expensive and is charged, leaving the active manager at least 0: 2 behind. MIFID 2 contributes to the short-term hype and the penetration of very expensive large caps as they are included in different indices.
MIFID 2 chokes the occupation of direct investing as it was thought about 1600. A negative side effect of MIFID 2 is that relatively small unknown companies are forgotten in the investment scope. These companies are not included in an index for a variety of reasons; that the inclusion of a company in a particular index guarantees quality is a fallacy. The criteria underlying most indices are, in the least, arbitrary. It seems to me that the EU had been wiser to develop a model that helps smaller companies. To fill the coffers of Amazon, Apple or Aramco is the reverse world; not to mention the mess that secretly houses at an average index.
MIFID 2 is apparently designed by policymakers who have no understanding of stock-market-based customized financing. And indeed, after the next crash – which is certain – the insane rules will only increase. The fact that MIFID 2 contributes to the blowing up of indices seems unfortunate not to be realized by European policymakers. Whether you are helped, under the line, by the assumed transparency of MIFID 2 is just the question.
It remains for me to wish you a good weekend.
Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.