6 Problems of Fat Cat Funds

6 Problems with Fat Cat Funds

1 - Most fat cat funds fail

Over 70% of Fat Cat Funds fail to beat the index. Many “dogs” (the worst funds) are reported in the “Hall of Shame” by Best Invest and over 90% of investment advice is rated as bad. The financial services industry has a reputation for over promising and failing to deliver. Also the industry can ignore customer complaints by the magic warning notice – “Shares prices can go down as well as up. You may not get back your original investment. Historical returns are no guide to future returns.” You get more protection buying a fraudulent car than you do with financial services.

2 - Fat cats only make 5% profit

You’ll only make about 5% pa profit long term. Not much profit for all those crashes. Fat Cat Funds have a very poor risk-reward ratio. The bottom line is that Fat Cat Funds fail to make much money for you. Boom times are short but depressions last a long time. The current stock market slump has lasted 15 years. Holding funds for the long term is a bad strategy.

3 - No Duty of Care. Crashes lose 50-90%

Fat Cat Funds never operate a Duty of Care system. They do not operate a stoploss policy. Therefore you lose 50-90% in a stock market crash. Although Fat Cats claim to hedge losses and to spread risk by making a wide range of investments to protect you, the reality is that you’ll always lose heavily in a crash. Why? Because by holding for the long term, you’ll forget about selling and they’ll continue to make money from you. There are investment strategies and Duty of Care Systems to deal with crashes, depressions and flat markets. My Duty of Care System is a key element to make profits in a slump.

4 - No profit incentive. No performance related fees.

Fat Cat Funds have no incentive to improve their investment performance (and your profit) because there are no performance related fees. Fat Cats always make a profit. They make big profits in market booms and small profits in market crashes because they charge you a fixed annual fee based on the value of your portfolio. They want to keep you as customer for 10-20 years. Hence you’ll always hear them tell you to “Hold for the long term” and “Shares – They will recover.” If you sell out at a stoploss at the start of a crash, they won’t make any profit. Fat Cats have brainwashed you to forget about selling. You can only make a profit by selling.

5 - Hidden fees take most of your profit

The regulator is trying to force Fat Cat Funds to reveal all their fees but with limited success. You’re told that fees are only 1.5% but this ignores dealing costs, special management charges, commission and the spread. The spread is the difference between the buying and selling price. If you buy a blue-chip share yourself, you’ll see the spread is about 0.2%. In contrast, the spread on a Fat Cat Fund is about 4% - that’s 20 times more costly. So your profit shrinks. No wonder fat cat funds don’t make money for their clients.

6 - Conflicts of interest

As mentioned previously, fat cats put their own profit interests ahead of their customers because of a lack of performance related fees. In addition they suffer from conflicts of interests due to directors’ shareholdings, investment committees and subsidiary company conflicts - despite the chinese walls to protect your interests. For example, they continued to hold BP shares – even though BP suffered a huge rig explosion in the Gulf and the shares fell 50%.

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