We walk the road less-traveled.

British fund management overseers are under attack for allowing the asset managers they regulate to overcharge by claiming to offer expert stock-picking, and in fact then to only passively copy an index. Moreover they charge high fees to small investors for their “closet tracking”, about triple what large institutions pay for the same portfolios. Fees are so high that the operating margins of fund managers listed in London is 36% compared to only 14% in sectors like technology or pharmaceuticals.

Of course they don't tell retail investors about the high hidden charges they are imposing or the kickbacks they get from index funds of other investment vehicles or the commissions paid to fund salesmen (called financial advisors).

The solution adopted by US investors is to put their money directly into an index fund to avoid expensive management fees. But stock market tracker funds really don't work better, particularly when they aim an a small and/or exotic section of the market. As money flows in and out they have to buy and sell often at the worst possible moment: they buy on exuberance and sell at despair, and of course also incur trading charges. So they cannot ever properly track whatever they “hot” idea they claim to cover: marijuana stocks; self-driving vehicles; artificial intelligence; 3D printing; checkpoint inhibitors—whatever the best-seller is.

More from Britain where the worst abuses of retail investors occur, starting with the comments of a leading fund manager whose shares we own, and then highlighting some of our picks which index funds ignore. Despite July 4 there will be a blog tomorrow but there will be a hiatus later this week when I fly home to New York.

Sterling yesterday was settling over $1.30 and this means British shares we own are gaining for US investors by more than the 16 points the FTSE 100 index has risen by. I think the dollar's fall is related to shenanigans by President Trump but I am prejudiced against him and in favor of the press, of which I am a member.

Finance

*Standard Life is an insurance company that after a merger with Aberdeen Asset Management has become a global leader in running funds, including several bond funds we own. (Unlike stocks, bond funds cannot simply track an index because the bond market has too many different entities in it.) The co-CEO of the combo is Keith Skeoch who wrote yesterday in the UK Financial Times about current trends: broaded popular investment in funds; low interest rates and return; digitization and tech; and customers' lack of trust. Of the latter, he wrote: “Trust needs to be earned and, like beauty, it is in the eye of the beholder.”

He approves of the Financial Services Authority challenging the fairness of business models and practices “of the past”. SLFPY wants its customers to be “confident that the funds they invest in do what they say on the tin” [can]. He also stresses that “transparency and simplicity of fees and charges” not only “ensures fairness to customers” but “I would argue improives the long-term health and sustainability of the industry”.

One of the biggest operator of a variety of funds, including our Aberdeen Global

​​Income and Aberdeen Asia Pacific

Income​

 US closed-end funds, FAX, and FCO, is supporting reform. The fund industry is global, particularly the English-speaking part of it, and the abuses found in the UK are not unknown across the pond. Our SLFPY stock is a way toward removing them.

*Another British curiosity we own and cover is Virgin Money, the challenger bank set up by serial British entrepreneur Sir Richard Branson. Last week the top manager of VRGDF, one of the few women heading a UK bank, CEO Jayne-Anne Gadhia, won the top Evening Standard Business Award for this year. VM actually fell 0.7% last week despite Gadhia's award, perhaps because she designated the proceeds for helping women deal with depression, with which she suffered after the birth of her daughter. Unlike alpha males, women admit to weaknesses. She said “I have battled with mental health all my life” in her book published byAmazon, The Virgin Banker.

Technology

*Yet another British curiosity in our portfolio is Renishaw, a tech firm doing metronics (high tech measurements), which Martin Ferera compares to Berkshire Hathaway in the US. It is expensive and hard to trade and not well-followed by the herd. Last week in UK trading, Renishaw rose 2.3% to GBX 3620, one of the top performances in the FTSE 350 index.

Over the weekend I updated a 2017 stock pick made for Wall Street's Best Dividend Stocks early this year.

*BAE Systems was formed in 1999 by the government-encouraged merger of Marconi Electronic Systems with the former UK General Electric Co (no relation to our GE) which had been renamed British Aerospace. This history is important because until this June, UK policy has been to limit further mergers, acquisitions, and divestitures by BAESY so as to foster competition in military procurement. It was only allowed to do M&A (mostly by selling assets) in non-military lines and also in the US, where it bought Lockheed Martin Electronics, and in France and Germany—not Britain.

These obstacles to rationalization of its UK business have now been lifted, letting the defense, aerospace, and security company pursue global growth freely particularly in security (cyber and electronics intelligence and surveillance), a growth area where its biggest client is the US military. I expect it will increase its operations providing services in gaming, telecommunications, and financial services globally with its new freedom while continuing its military business in Britain, the US, and the Gulf, supplying navies, armies, and air forces with civil and military airplanes, interactive gear, combat tanks and vehicles, and naval and missile launchers and munitions.

I tipped BAESY expecting that threats from Russia and China would become more severe after the Great Negotiator, Donald Trump, won the US election and opted to boost military spending.. BAE, which The Baltimore Sun thinks is a Maryland company is not; its US listing is for a 1:4 American Depositary Receipt on a London-based and -listed firm. Year-to-date it has risen about 15% in dollars from $28.9 to $33.5 despite a modest drop in net income (caused by higher interest expense under Brexit) while also paying a dividend of 3.1%. An unusual feature of the share is that it is unpopular with fund managers and institutions, and they collectively own only about 3.4 mn of the 7.5 bn shares outstanding, according toBank of NY-Mellon.

Like other ADRs it reports only 2x a year, with H1 interim due July 31.

BAESY doesn't have a consensus rating, as major analysts rate it underweight, hold, overweight, and buy in about equal measure! It opened July with a wekiend warship contract for £3.7 bn from the UK Defence [sic] Ministry for Type 26 Global Ships on the 2^nd.

Pharma

*UK intellectual property commercialization specialist Frontier IP Group PLC (FIPP) yesterday said its portfolio company Exscientia Ltd entered into a strategic drug discovery collaboration with GlaxoSmithKline. We don't own FIPP which is privately held in Scotland but we do own GSK. It spent £32.6 mn ($43 mn0 to buy into FIPP which also did a deal with Sanofi of France earlier this year.

Our pharma portfolio, while showing lower margins than fund management, alos includes a leader in checkpoint inhibitor and immuno-therapy for treating cancer, Swiss Roche via its US arm the develper of Tecentriq, one of the key drugs being tested solo and in combination now. It is the only non-US pharma firm with a key role in this hot area, although we also do own small-cap startups from around the place working on this therapy: Israel's Compugen; Denmark's Bavarian Nordic; Ireland's Shire.CGEN; BVNRY; SHPG.

*Roche has agreed to buy mSugr, a diabetes monitoring app, for an unstated amount of money. It will be interegrated into its house brand Accu-Chek device and other remotoe patient monitoring systems. RHHBY is Swiss.

*I am still trying to find out why my Stada Artzneimittel shares are frozen after the takeover big I was accepting failed to tempt enough sellers. STADF is another Europe-only traded drug firm I own through Fidelity which screwed up massively over the last one I owned with them, French Stallergenes. This is one is German and is being bid for by US firms which may help.

Autos

*Negotiations between Tata Group of India over a sale of a stake in its UK steel firm are going on with ThyssenKrupp of Germany which, rumor has it, wants a slice of Jaguar-Landrover, the golden arm of Tata Motors in return for taking a stake in the bankrupt British steel firm.

*Swedish Autoliv has signed another self-drive car accord, this time with Velodyne LIDAR Inc which offers patented 3D software tech and an ASIC engine for autos. ALV is moving fast.

Gas and Oil

*Israeli Delek Group reports that the Tamar offshore field it is having to divest is 13% richer than previously indicated, and therefore should be priced higher. This is based on areport by Netherland, Sewell, a company which evaluates reserves for the oil industry. DGRLY has to sell its crown jewels because it was unable to raise cash for developing the Leviathan field from sale of its Phoenix insurance arm.

*Last Friday Ecopetrol of Colombia closed up nearly 2% but I cannot figuyre out why.