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From the extreme to the banal

There was even a new one this week – claims management ‘phoenixing’. If you haven’t heard of it either, it’s when a financial services firm goes out of business swiftly followed by a closely connected individual, such as a spouse or other relative, setting up a claims management firm which then charges the former customers of the collapsed firm to bring compensation claims to the FSCS. The FCA reckons there have been more than 1,300 cases of claims phoenixing, with each claim netting the unscrupulous claim manager several thousand pounds. 

Phoenixing, tiny though it is, hints at the growing threat posed by financial wrongs and crime which are now forcing the authorities to take drastic action. Anyone transferring their pensions savings will face tricky new barriers proposed this week to protect them (almost £2m has been lost to pension fraud so far this year), while the FCA is losing patience with firms that don’t pay due regard to the interests of their customers and that pay only lip service to the FCA consumer principles. This week it fired a warning shot across the industry’s bows: if the level of care doesn’t improve, then it might allow private individuals to directly sue fund houses for regulatory failures.

All of these moves are designed to protect the consumer, but they come at a cost. Certainly the threat of legal action in the civil courts could have a detrimental effect on the choices available to consumers, especially for those willing to embrace a degree of risk.

Against that rather depressing backdrop, the farewell remarks of Scottish Mortgage Trust manager James Anderson were in stark contrast. As he looked back over his 22-year tenure at the helm, what struck him was how he had been insufficiently radical and what makes him envious are the opportunities yet to come from “wrenching, inspiring and dramatic change in the next decade”. Investors, he said, should accept the deep uncertainty of the world and resist the temptation of “minor opportunities in banal companies”. It is extraordinary companies that deliver outstanding returns, and these are likely to be found where change is happening. “It is the search for companies with the characteristics that might enable extreme and compounding success that is central to investing,” he says. It requires conviction (share price drawdowns can be regular and severe) and it’s the sort of change that is happening in renewable energy – a sector boosted further by the International Energy Agency’s insistence that all new fossil fuel exploration must stop, and one that Dave Baxter has been looking at in his assessment of iShares Global Clean Energy ETF (INRG).

The important thing for Anderson is that investors should always listen to the experts, who understand the change that is happening and its implications. If knowledge is a protection for investors, Anderson's incredible record shows that a knowledgeable manager with strongly held convictions can be too.