MakovskyWednesday, June 24, 2015
One week ago today, The Wall Street Journal did what few news organizations ever aspire to: it became the story instead of reporting it. In a memo to staff, WSJ editor Gerard Baker announced that Dow Jones and The Journal would “accelerate the transformation of our newsroom with a bold but simple aim: to become the premier digital news organization in the world.”
The 1,200 word memo reviews the struggles to attract readers, the competition from free outlets, elimination of unnamed “non-core blogs,” closures of bureaus in Helsinki and Prague, and the end of small business coverage. Only then do we get to the shocker: “We will be scaling back significantly our personal finance team, though we will continue to provide high quality reporting and commentary on topics of personal financial interest to our readers.”
There’s an obvious disconnect here: How can average investors expect the same level of depth and insight from the WSJ across the board with a scaled-back team? Moreover, if personal finance reportage is edging into the non-core land, like the shuttered bureaus in Helsinki and Prague, what’s in The Journal’s editorial mindset about the wealth gathering of the average reader?
Dow Jones doesn’t operate in the public interest, like broadcasters, and the WSJ and Newswires need to turn in an acceptable profit for shareholders—and we here certainly want them to do so. However, readers need more of what The Journal is cutting back on, not less.
Consider these well-known stats: For the next 15 years 10,000 people will turn 65. According to the Federal Reserve, the median balance of retirement accounts held by Americans who are saving for retirement totals less than $60,000. Millennials, who were out of the market when it imploded in 2008, are just now feeling the water is safe enough to go into the equity markets.
Against this background, we need more dedicated journalists to investigate and present the range of investing strategies.
So what’s driving this? It’s hard not to see The Journal’s actions against the backdrop of three factors: the explosion of passive asset management, the growth of robo-advisors, and the absence of a meaningful correction in the U.S. equity market since the calamities of 2008. Investors aren’t actively making investment choices as they used to, and it’s been seven years since there was a penalty for making a bad choice. But that day will come.
According to the Investment Company Institute (ICI)’s Fact Book, from 2007 through 2014, index domestic equity mutual funds and ETFs have surged dramatically in the last seven years, receiving $1 trillion in net new cash and reinvested dividends. On the other hand, actively managed domestic equity mutual funds experienced a net outflow of $659 billion, including reinvested dividends, from 2007 to 2014.
While robo-advisors have only about 0.5% of the U.S. assets under management, the business proposition is compelling: investors fill out a questionnaire to determine suitability, a computer makes what it believes are suitable allocations to low-cost ETFs, and rebalance the portfolio for you. The computer builds the portfolio and rebalances it for less than 0.1% annually.
Despite the attraction, robo-advisor portfolios are untested in volatile and bear markets, of which we’ve had very little since 2008. And because it’s a highly fragmented industry, we don’t know which robo is the better mousetrap. While reporting about their admirable asset growth has made for interesting reading, there’s also been little reporting about what goes on under the hood of robo advisors. In short, there’s been little experience with and analysis of this cheap, attractive asset gatherer.
Some are saying active management is dying a withering death and asset allocation is “the new active management.” Actually asset allocation has always been the first step in portfolio construction, undertaken long before reviewing, let alone buying, specific stocks, bonds or other investments.
This is not the time to pull away from examination of personal investing. We hope that The Journal’s new content and reportorial changes will add the insights as its reporters have in the past. Maybe these fears from the sidelines are overblown. But if we wait for the next downturn, it will be too late.
–John McInerney, Group Vice President