Apparently 40 percent of Europeans use savings accounts to park money compared to just 10 percent using mutual funds. Given the ultra-low interest rates currently, this means lots of people are missing out on better returns and the reason is that the funds industry is still caught up with too much technical language.
“Investors don’t care about alpha, beta and R squared, most [retail investors] don’t even know what these words mean,” said Chris Chancellor, senior director within the global insights team at Broadridge.
He illustrated the importance that adding a story can have on value by presenting a graph which showed how $250 of goods bought could be re-sold on Ebay for $8000 with the addition of a compelling narrative. The suggestion being that add a story, receive a 32-fold increase in value.
By stories, Mr Chancellor is essentially talking about thematic funds, whereby investors can feel they are involved in some sort of theme. Fund selectors are also keen for this trend to increase, with one quoted as saying, “we have a story to tell and we need the end investor to buy into that story”.
Examples include a climate change fund with the story being ‘you can both benefit and promote action to improve climate change’ with the emotion being that investors feel they are doing good with their money.
Another example was a robotics fund with the narrative being that the world is rapidly changing and investors may feel excited to be involved in this cutting-edge technology.
Mr Chancellor revealed a table showing which firms are leading in the thematic fund field and Pictet Asset Management is the clear leader with Robeco and Fidelity some way off in second and third place respectively.
He finished off his presentation with a slide asking ‘what does making it exciting mean for fund managers?’. There were four main points including the rising importance of marketing in innovation and design as well as being authentic and using simple rather than complex language. The main point was underlined; the storytelling ability should run through the whole firm with the implication being that the amount of assets invested in funds would increase if investors could identify with the products better.