Financial Sauce
Pfäffikon SZ, Switzerland – When you walk in the supermarket, often marketing experts are messing with you. The lettuce labeled bio is most likely from the same field, and the fat-free Greek yogurt contains as much sugar as a bottle of coke when you study the label well. In the financial world, this principle is no different.
Homework
Many investors hate homework and, therefore, investing needs to be simple and easy. When I ask investors in Credit Suisse if they have taken the trouble to read the annual report, the answer is rejected in 99% of cases. They buy because the bank has fallen sharply in value, but actually, the investors have no idea in which they invest. The brand of Credit Suisse sounds like a clock, so what would be wrong?
Careless
With “simple” financial products, investors are even more careless. For example, when the label ETF is attached to a product, investors quickly think the product is cheap. The costs of the broker or the financial specialist are often well hidden. What the ETF label says and what it actually does are two totally different issues. A good question, for example, is how the debt of the underlying companies in the relevant ETF is built up? And an even more important question is in which currency these ETFs notes and where they were issued? After all, when investing in China using an ETF, the debt structure of the underlying companies can be outside this region. In this case, the behavior of your ETF can change dramatically.
Recently, the undersigned visited –on invitation– a financial product builder in Zurich, as the gentlemen might add value in a specific investment issue. I still find myself in the stage of research, but for now, I see a steak covered with sauce. Communication looks good, but how the product actually works is not clear yet. The information given is still too limited for that purpose; More research is required.
When a product is advertised with ETF or Tracker, do your homework. There are plenty of good ETFs but unfortunately also very bad ones. Sauces in the financial industry can be tempting but also dangerous, as they behave like a chameleon. At first sight, simple investing in a financial product suddenly becomes complicated.
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.
