I don’t know about you but I like it when things are made easy for me. Hand me a magic wand with the promise that all my problems are over, and I’ll give it an experimental wave.
And hey presto! BlackRock – the fund giant behind the popular iShares ETFs – has come along with an investing magic wand in the shape of its new MyMap [1] range of funds – here to solve your asset allocation worries.
Each MyMap fund is an off-the-shelf solution known as a fund-of-funds [2]. Essentially it’s a hamper full of index trackers that amount to a ready-made portfolio.
With a fund-of-funds there’s no more fretting about how much emerging markets is too much, or whether to be big in Japan. Such diversification decisions are taken care of by the portfolio manager/fairy.
There are already lots of other fund-of-funds on the market. The gold standard up until now for passive purists has been the Vanguard LifeStrategy [3] range.
And with MyMap on the scene… it looks like Vanguard LifeStrategy is still the gold standard, for our passive purposes at least.
Look into my eyes
As passive investors [4], we want products that are:
- Low-cost
- Simple
- Transparent
- Aligned with sound financial theory [5] (for example, we will achieve market returns through long-term asset allocation decisions rather than market timing).
MyMap scores well on the low-cost front, but on the latter three points it distracts with a lot of wand waving.
Here’s a summary of what MyMap is touting:
[6]
Source: Blackrock
Now those Ongoing Charge Figures (OCF) [7] (rightmost column) are low. MyMap’s 0.17% annual fee compares very well with the 0.22% you pay with a Vanguard LifeStrategy fund. To put that into real money, MyMap would set you back £170 per year on a £100,000 portfolio versus £220 for LifeStrategy.
The table also shows us the asset allocations on offer across the MyMap range where, as always, the critical investing decision [8] is how your money is split between equities and bonds.
We can see the MyMap 3 fund ranks as low-ish risk with only 34% in equities. The range then steps up through the gears to the high-octane MyMap 6, which has 82% in equities.
Ala Peanut Butter Sandwiches
From here on things get cloudy, not to mention smoke and mirror-y.
The MyMap portfolio is actively managed. It’s built from iShares index funds and ETFs, but the Key Investor Information Documents (KIIDs) say [9]:
The Fund is actively managed without reference to a benchmark meaning that the investment manager has absolute discretion to choose the Fund’s investments and is not constrained by any target, comparator or performance benchmark.
You can choose your allocation today but the manager is free to move it all over the map tomorrow. So how concrete are the asset allocations we saw in the table?
BlackRock notes:
Expected asset allocations as of Day 1. For illustrative purposes only and subject to change – there is no guarantee that the above asset allocations will be met. Allocations may change over time.
And this is the nub of our concern.
The reason why billions has flowed from active funds to passive funds in recent decades is because the word is out: asset allocation is what determines most of your results, and active managers – as a group [5] – don’t add value by timing the market.
This means that as a passive investor persuaded by the evidence [10], I want a reliable asset allocation that is maintained by clear rules [11].
BlackRock is playing yesterday’s game: We’ve got a secret sauce that can zhuzh up your results!
The volatility targets in the table look flighty, too. From BlackRock again:
There is no guarantee that the Fund will perform as expected and remain within the stated volatility tolerances. The fact the Fund remains within the stated volatility tolerances does not guarantee positive performance.
The volatility management process may reduce the effect of falls in market prices but may equally moderate the effect of rises in market prices.
When markets are volatile, managing volatility within tolerances will [r]equire the asset allocation of the Fund to be changed more frequently than normal. The cost of the transactions required to effect these changes will be met by the Fund and may affect returns.
In other words, the tight ranges listed in the table are marketing. And should the volatility targets corset the manager, your costs could increase because higher investment turnover [12] will incur more trading fees.
One of the advantages of passive investing is that turnover is low relative to active management. A proper cost comparison includes fund trading costs as well as the OCF.
And for my next trick…
BlackRock has been here before with its Consensus funds [13]. This too is a range of fund-of-funds, constructed from index trackers with an active management overlay.
MyMap reboots the Consensus concept with a slicker marketing campaign, a cheaper price tag, and a different coloured wig.
The most intriguing thing about MyMap is the allocation to alternatives, listed as precious metals and real estate in the KIID. The 2% allocation to alternatives cited in the table above would be near pointless, but the small print says the manager can invest up to 15% in alternatives.
I like the idea of extra diversification. However the uncertainty baked in to the arrangement makes me think it’d be simpler to just add a REIT tracker and/or a precious metals ETC to an existing portfolio rather than having to keep checking in on what the MyMap managers are up to.
All hat no rabbit
You may be sensing that I don’t see MyMap as a massive breakthrough for passive investors. True, but even if I was as excited as a koala discovering eucalyptus ice-cream, I’d counsel caution. That’s because BlackRock hasn’t yet published data on the fund holdings [9].
There’s nothing suspicious about that – the funds only launched on 28 May 2019. But it does mean we don’t yet know anything about the split between global vs domestic securities, say, or how the fixed income side will be diversified across government, corporate, index-linked, and junk bonds.
Once BlackRock shows its hand, we’ll be left with a conundrum. Because these funds do appear to be cheap.
The main argument against active management is it’s not worth the cost. But where does that leave us if MyMaps’ active management is cheaper than a pure passive alternative?
MyMap is marginally cheaper than Vanguard LifeStrategy at the OCF level. Only time will tell whether it can maintain that advantage once transaction costs are tallied and the total cost of ownership [14] is known.
Yet even with that said, control remains a key factor. Is a slim saving worth it when active management decisions could be leading you towards an inappropriate asset allocation?
Personally I think that’s a poor trade-off.
A fund-of-funds is meant to make life simpler and more convenient. For my money, MyMaps introduces unnecessary complexity.
Take it steady,
The Accumulator