If only Montgomery had hugged the index himself instead of actively investing, his own clients might have been better off.
Decades on from the world’s first exchange-traded fund and even the fiercest critics of passive investing usually come to admit that cheap index-hugging products are usually the best option for most people.
Unless you’re Roger Montgomery, who has kept up his incessant assault on ETFs for close to a decade now.
The Montgomery Investment Management founder has launched tirades on the risks of blindly tracking the market and cons of a passive approach across podcasts, newspapers (including this masthead) and in endless posts on his own website.
ETFs are “simply dumb investing” that only “know-nothing investors” would consider. Some are too concentrated in certain stocks, while others invest too broadly. Themed ETFs are “a trap”, and young investors “should rethink” index funds in general.
So our eyebrows shot right up when a fund managed by Montgomery was fined by the Australian Securities and Investments Commission recently for misleading consumers about its own returns compared to indices.
It turns out Montgomery had published a chart on its website for several years (and updated it monthly) purportedly showing the Polen Capital Global Growth Fund’s outperformance compared to its benchmark MSCI index since its inception. Except, it turns out, it hadn’t.
The Polen fund has only returned 23.65 per cent since its March 2021 inception, compared to 83.89 per cent from the index. Not even close! It has underperformed the index consistently over that period too, bar a few months when it first launched. Even when looking at compounded returns, it still comes in lower.
No wonder Montgomery is threatened by index huggers when his own firm can’t read indices right.
The fine was a piddling $19,800 and Montgomery (the company) has since updated its website. Surely the true penalty is the embarrassment that the only way the fund could look beat the index was by seemingly fudging the numbers.
We shouldn’t be surprised. In a 2023 blog post titled “Is it time to reconsider investing in an ASX 200 ETF?”, Montgomery built his case around the claim that the S&P/ASX 200 index has shown no capital growth in the past 16 years. He had done some maths regarding dividend payouts to get there. But in reality, if you look purely at the increase in the index’s value over that period, it was up 82 per cent.
Then there’s his own flagship Montgomery Fund. It’s underperformed its benchmark S&P 300 Accumulation Index by 4.23 per cent over the past 10 years annualised and by 41.3 per cent since inception compounded.
Which means that if you’d chucked $100,000 into the fund 10 years ago, you’d now have $178,000. Whereas if you’d put that into an ETF tracking the index, you’d have $262,000. And that’s even before Montgomery takes out its far higher fees. What was he calling “dumb investing” again?
Perhaps old mate Roger has finally cottoned onto the fact he’s fighting a losing battle, as he’s recently turned his attention to selling private credit and spruiking his expertise in digital assets and AI instead.
What are ASIC’s two new favourite areas of focus of late? Watch it Roger.
ETF hater Roger Montgomery’s fund fined by ASIC as it can’t beat the index