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How to compare Lloyds IPS against other investements
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Have a look here:
http://www.moneymadeclear.fsa.gov.uk/products/investments/types/pooled/open-ended_investment_funds.html
For the gory details http://incademy.com/ has more in depth detail about the pricing structure for UTs/OEICs.
I'm pretty sure that's wrong.
The TER does not include dealing costs.
The PTR reflects annual portfolio turnover, and is correlated to dealing costs.0 -
One would hope the FSA at least could get it right on their own website, especially when the raison d'etre for that site is to 'make money clear'!
If it is wrong and the FSA themselves are confused, what hope do the people they're trying to help have?
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Here's a better explanationTotal Expense Ratio
The Total Expense Ratio measures the total annual charges and expenses of an investment fund that impacton any returns to the investor. All European investment funds highlight the Total Expense Ratio to help youcompare the annual charges and expenses of different funds.Fund Managers are permitted to charge certain expenses to the Fund on top of the annual management charge, e.g. the fees of the Trustee, Auditors, Financial Services Authority, and our fees for maintaining the register of investors. The Total Expense Ratio adds all these charges and expenses up (they are detailed in the full annual fund report) and expresses them as a percentage of the average net asset value of the Fund over the Funds 12 month accounting period.
It is important to note that the Total Expense Ratio takes no account of the Funds initial charge and thetransaction costs incurred by the Fund when buying or selling stocks and shares for the Fund.
Portfolio Turnover Rate
The Portfolio Turnover Rate of the Fund measures the amount of trading activity within the Fund over the 12 month accounting period of the Fund. In other words, how much of the Funds portfolio of investments is changed over this period. Portfolio Turnover Rate is an indicator of the level of transactions costs (e.g. broker commission when buying and selling stocks and shares) that a fund is incurring. A high Portfolio Turnover Rate will result in the Fund incurring more transaction costs than a fund with a lower Portfolio Turnover Rate.The Portfolio Turnover Rate is calculated by adding up all purchases and sales of investments made by the Fund (excluding purchases and sales due to investors joining or leaving the Fund) and expressing this as a percentage of the average net asset value of the Fund, over the Funds 12 month accounting period
The PTR costs are not included because they are not really charges. The TER reflects the additional cost of buying the fund manager's expertise. Whereas the PTR indicates the amount of trading activity that the manager undertakes. More active trading is more costly, but can give better returns if well-timed and chosen. If you traded on your account, you would still have the PTR-type costs (and they would probably be higher), but you would not incur the cost of the TER. A high PTR may be a good or bad thing depending on your view on the manager's skill, so you should bear it in mind.
There is no point in quoting the annual charge at all, because the other costs included in the TER are just as relevant as the annual charge. If the fund is very small, the TER can be quite high. You should ignore the AMC entirely, and just look at the TER (and possibly the PTR).0 -
You don't pay commission. It is taken from the annual charge. If you invested in these funds, 0.5% PA goes to the advisor, taken out of the 1.5%.
Funds are commonly available with variable AMC, so you can get the same fund at 1% AMC and no commission or 1.5% with 0.5% commission. You can choose to pay by commission or pay by fee but however it's done, you're the one paying.
It still seems commonplace for advisers and such to make the bogus claim that just because the money is coming out of an increased AMC it's not coming out of your pocket. Wherever the option exists to reduce the AMC and eliminate the commission it's an inherently misleading practice to make the false claim that you're not paying, IMO. You clearly are, with the vendor just acting as the middle man, collecting the higher AMC from you and paying it to the adviser.0 -
After meester's last post above I took the time to read through a simplified prospectus for one of the investment companies I'm with and indeed what he pasted above is correct or at least tallies with the Blackrock prospectus I read - dealing costs are not included in the TER. I would recommend trying to read a simplified prospectus for one of the funds you're interested in investing in and trying to absorb the information in there.
The one I read last night was for Blackrock:
Simplified Prospectus For Blackrock Funds
Charging on investment funds is very opaque in general in my experience - there are even more pitfalls when you start talking about creation pricing for unit trusts/OEIC units/shares. The creation price is the price you pay per unit/share when you introduce new money into a fund. The creation price is often more than the advertised net asset value (NAV) price and introduces yet another stealth charge because of the costs involved in creating new units/shares in a fund.
Personally I find this very unfair - I think brokers like HL should advertise the current creation price alongside the current NAV for each fund. Even though the current creation price won't be the 'forward price' they pay, at least it gives an idea of what the diff is between NAV and creation price and allow the customer to know in advance roughly how much on top of the NAV they'll pay for new units/shares.0 -
After meester's last post above I took the time to read through a simplified prospectus for one of the investment companies I'm with and indeed what he pasted above is correct or at least tallies with the Blackrock prospectus I read - dealing costs are not included in the TER. I would recommend trying to read a simplified prospectus for one of the funds you're interested in investing in and trying to absorb the information in there.
The one I read last night was for Blackrock:
Simplified Prospectus For Blackrock Funds
Charging on investment funds is very opaque in general in my experience - there are even more pitfalls when you start talking about creation pricing for unit trusts/OEIC units/shares. The creation price is the price you pay per unit/share when you introduce new money into a fund. The creation price is often more than the advertised net asset value (NAV) price and introduces yet another stealth charge because of the costs involved in creating new units/shares in a fund.
This is not quite true.
There are two prices quoted for Unit Trusts.
These are Bid and Offer.
For instance:
http://www.h-l.co.uk/fund_research/security_details/sedol/0258359.hl
Artemis UK Smaller Companies Accumulation Units
Bid price is 721.66p. This represents the price the NAV of the underlying units at the price they could be sold at in the market.
and
Offer price is 779.90p
The initial charge is 5%
If you are getting a full discount, then the price you pay is 779.9 * 0.95 = 740.905p
This represents the cost of creating units, i.e. the buy price for the underlying shares is higher than the sell price. The difference is 2.4%, which seems about right for smaller companies shares.
On the other hand, some fund managers choose not to charge the full creation cost.
Have a look at
http://www.h-l.co.uk/fund_research/security_details/sedol/B02TPH6.hl
Marlborough UK Micro Cap Growth Accumulation
The prices are
162.56p/172.02p with an initial charge of 5%
Take off the charge, and you end up with 163.419p. This is clearly nonsense. They hold 113 separate microcap shares, and the cost of creating each unit is going to be a lot more than 163.419p due to lack of liquidity on these microcap shares. In this case they are discounting in order to attract more money. The people that pay for the discount are of course existing fundholders.
When it comes to OEICs, new money coming in ALWAYS costs existing unitholders money, because there is a single price for buying and selling. Hence new units are essentially charged to the whole fund. If the fund is growing by 40% per year in new capital, and the cost of buying shares is 1%, then if you have £x worth of shares before, then afterwards you will have
x + 0.4x - 0.004x, = 1.396x
but the number of units has increased by 40%.
So each unit has lost 1 - (1.396/1.4) = 0.29%
That works out as a 0.29% effective annual charge based on those assumptions.
It might be that this can be somewhat reduced in effect by buying into new shares (i.e. in different companies that are seen as better than current holdings), I am not sure how automated this is.Personally I find this very unfair - I think brokers like HL should advertise the current creation price alongside the current NAV for each fund. Even though the current creation price won't be the 'forward price' they pay, at least it gives an idea of what the diff is between NAV and creation price and allow the customer to know in advance roughly how much on top of the NAV they'll pay for new units/shares.
You pay NAV for OEICs. For Unit Trusts you can calculate the difference between bid and offer fairly easily.0 -
meester, OEICs shift their prices within a tunnel price range; they aren't really single priced, particularly for large buyers.0
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When I first read your explanation meester I initially thought yes that's a very clear and concise explanation of the situation regarding the bid offer spread on UTs and how this relates to the creation price.
However I've now just looked at some of my past transactions on some UTs and can't reconcile what you say with my experience. The creation price as far as I can tell cannot be known on any given day without asking the fund manager for the information. However I might have misinterpreted what you said, can you clarify this please?:There are two prices quoted for Unit Trusts.
These are Bid and Offer.
For instance:
http://www.h-l.co.uk/fund_research/security_details/sedol/0258359.hl
Artemis UK Smaller Companies Accumulation Units
Bid price is 721.66p. This represents the price the NAV of the underlying units at the price they could be sold at in the market.
and
Offer price is 779.90p
The initial charge is 5%
If you are getting a full discount, then the price you pay is 779.9 * 0.95 = 740.905p
This represents the cost of creating units, i.e. the buy price for the underlying shares is higher than the sell price. The difference is 2.4%, which seems about right for smaller companies shares.
So in this instance are you saying that the creation price would be 740.905p?
If so then this isn't my experience. An example of a transaction for which I happen to have the fund managers own data including the creation price:
Here is the data from a spreadsheet for a buy transaction (new money, not a switch) for Blackrock UK Absolute Alpha fund:Date Price Paid (p) Initial Charge (%) HL Initial Charge Discount (%) 09/10/07 108.299500 5.00 5.00
So on 09/10/07 I paid 108.2995p, initial charge was set at 5% but HL's IC discount was 5% making the initial charge effectively 0%.
Now, on that day the actual data I have from Blackrock is as follows:Date Bid (p) Offer (p) Creation (p) Cancellation (p) 09/10/07 108 113.7 108.3 108
So doing your maths from the example you provided above, the price on 09/10/07 I should have paid was: 113.7*0.95 = 108.015p (IC discount of 5%)
However the price I actually paid was 108.2995p - which tallies with the data I obtained from Blackrock where they say the creation price for that date was 108.3p.
This is the reason I posted above that there is still an effective stealth charge when you buy into a fund - you cannot know the creation price on a given date in the past without having to ask the fund manager for it - ie you can't work the creation price out from just the bid/offer spread and the initial charge cost.
I may well be wrong though!
Thanks again for your explanation though, for a moment there I thought I understood creation pricing
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