Investment experts seemingly have no more success than anyone else and make money from their expensive reports rather than following their own advice, according to a new survey.
Detailed market analysis and complex reports cost the investment industry billions of pounds every year and are rarely worth the paper they are written on, says trading platform AJ Bell.
The Financial Conduct Authority has estimated that analysts took at least £1.5 billion in 2012 and the figure has grown since.
The company scrutinised the buy and sell tips for FTSE 350 companies throughout January 2016 and then monitored how the shares performed throughout the year.
How good were analyst’s buy and sell tips?
The result was shocking and made a mockery of so-called expert tips.
- Expert commentators recommended 470 sells and 1,939 buys in the month
- The 10 FTSE companies analysts liked best returned an average 2% over the year
- The 10 FTSE companies least favoured offered an average 56% return
- Only three of the 10 least popular shares dropped in value, while four soared by more than 50%
The survey was prompted by moves by regulators to make sure providers are charging fair fees and if excessive fees for research should be passed on to customers.
One leading fund manager, Neil Woodford, has axed outside research for his £9.3 billion Equity Income Fund.
Like him, AJ Bell disputes the value of the reports and argues that investors pay for the advice as part of annual account charges.
Do the opposite of what analysts say
Within the industry, analysts are accused of phrasing reports to generate dealing and other fees for the bank or stockbroker they are commissioned by.
The value of their insights is in doubt because of this and the poor performance of the shares they green light.
“Looking at the bare data, cynics would say the analyst research has little or no value at all — other than perhaps giving a steer that investors should do the opposite,” said Russ Mould, investment director at AJ Bell.
“From a retail investor’s perspective, this shows the importance of doing your own research,” said Mr Mould. “If you don’t understand the business, aren’t sure the company has pricing power, don’t trust the management or fear the shares are expensive, you may need to think again.”