Billionaire Warren Buffett is urging investors to boycott funds with rip-off fees in his latest annual letter to shareholders in his company.
Buffett claims investors have wasted more than £100 billion paying fees to Wall Street fund managers whose investments have not performed any better than low-cost tracker funds.
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” he said.
“Both large and small investors should stick with low-cost index funds.”
Buffett, 86, is a famed investment guru in the US as chairman of rail to foods conglomerate Berkshire Hathaway. Recent deals include buy outs of Burger King and battery firm Duracell.
Pledge to boost earnings
Berkshire Hathaway posted Q4 profit growth of 15% for 2016, with net income increasing from %5.5 billion to $6.3 billion. Net operating earnings were $2,665 a share, which was below the expected $2,717.
Buffett pledged to improve earnings for stockholders.
“By our avoiding the issuance of Berkshire stock, any improvement in earnings will translate into equivalent per-share gains.”
Buffett’s efforts to “materially increase” earnings will be aided by “America’s economic dynamism”.
“One word sums up our country’s achievements: miraculous,” he wrote. “From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.
“Starting from scratch, America has amassed wealth totalling $90 trillion.”
Search for investment secrets
Explaining his comments about fund managers, Buffett added that investors are often better-off with low cost funds rather than paying exorbitant fees to fund managers who fail to perform any better.
“These investors politely thank me for my thoughts and depart to listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant,”” he said.
“The search by the elite for superior investment advice has caused it, in aggregate, to waste more
“Many of these funds are woefully underfunded, in part because they have suffered a double whammy: poor investment performance accompanied by huge fees. The resulting shortfalls in their assets will for decades be made up by local taxpayers. Human behaviour won’t change.”