Comparing Returns from Managed Funds

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  • Totton wrote: »
    Fund performance figures would be TER and include any dividends that may have been paid.

    Hi excuse my ignorance - I'm new to investing and struggling to understand the impact of costs/fees on returns/performance. Does what you say above mean that fund performance figures quoted on sites like Trustnet, Morningstar, Citywire etc are NET of TER.

    eg Passive Tracker Fund X 5y performance annualised = 3.6% TER = 0.3%

    Active Managed Fund Y 5yr performance annualised = 4.2% TER = 1.95%

    My question is - Should I compare 4.2% with 3.6% or 2.25% (4.2-1.95) with 3.3% (3.6-0.3). Essentially am I comparing apples with apples when I look at performance and return figures?

    Hope this makes sense!

    Tom
  • Linton
    Linton Posts: 17,061
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    Honkytom wrote: »
    Hi excuse my ignorance - I'm new to investing and struggling to understand the impact of costs/fees on returns/performance. Does what you say above mean that fund performance figures quoted on sites like Trustnet, Morningstar, Citywire etc are NET of TER.

    eg Passive Tracker Fund X 5y performance annualised = 3.6% TER = 0.3%

    Active Managed Fund Y 5yr performance annualised = 4.2% TER = 1.95%

    My question is - Should I compare 4.2% with 3.6% or 2.25% (4.2-1.95) with 3.3% (3.6-0.3). Essentially am I comparing apples with apples when I look at performance and return figures?

    Hope this makes sense!

    Tom

    Published fund performance is after any charges. So if it says 4.2% return, that is what you get.
  • Rollinghome
    Rollinghome Posts: 2,674
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    edited 14 November 2012 at 11:37AM
    Linton wrote: »
    Published fund performance is after any charges. So if it says 4.2% return, that is what you get.
    To avoid confusion, quoted returns are normally on a "bid to bid" basis and include any payable trail commission. So depending on what, how, and where you buy, then the return you actually get could be either more or less.

    The bid price is the price the fund managers buy encashed units back at and the offer price is what they sell at. Trail commission is included in the annual charge and paid each year to the intermediary.

    For example, if you invest in a way so as to pay both an initial charge and trail commission then you'll get less than the quoted returns. If you buy without paying any initial charge or spread and get some or all of the trail commission rebated, such as from CavendishOnline, then you should get more than the quoted return.

    Depending on the time period and fund there could be quite a difference.

    On just a few funds, including some index trackers, there is neither an initial charge nor trail commission payable so what you see is what you get.
  • Linton
    Linton Posts: 17,061
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    To avoid confusion, quoted returns are normally on a "bid to bid" basis and include any payable trail commission. So depending on what, how, and where you buy, then the return you actually get could be either more or less.

    The bid price is the price the fund managers buy unit at and the offer price is what they sell at. Trail commission is included in the annual charge and paid each year to the intermediary.

    For example, if you invest in a way so as to pay both an initial charge and trail commission then you'll get less than the quoted returns. If you buy without paying any initial charge or spread and get some or all of the trail commission rebated, such as from CavendishOnline, then you should get more than the quoted return.

    Depending on the time period and fund there could be quite a difference.

    On just a few funds, including some index trackers, there is neither an initial charge nor trail commission payable so what you see is what you get.


    All true, but a second level of detail. Most funds have one dealing price, not separate buy/sell prices. The +- on the quoted return is effectively your paying or not paying for a service beyond the actual fund itself. In some circumstances you may pay extra fees to an online broker or IFA for a cheap tracker for the same reason. This lack of transparency should disappear shortly.

    The basic point remains that when comparing funds you dont subtract the TER from the published returns.
  • Linton wrote: »
    Most funds have one dealing price, not separate buy/sell prices.
    Most, but not all, unit trusts have two prices. Most OEICs, but not all, have one price.

    The difference between the two prices will include initial sales commission payable to intermediaries, the cost to the fund of buying or selling the underlying assets, and other factors.
  • Linton
    Linton Posts: 17,061
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    Most, but not all, unit trusts have two prices. Most OEICs, but not all, have one price.

    The difference between the two prices will include initial sales commission payable to intermediaries, the cost to the fund of buying or selling the underlying assets, and other factors.

    Most funds, 80% from a random sample from trustnet, are single priced. But yes you do need to take account of the spread with two price funds.
  • Rollinghome
    Rollinghome Posts: 2,674
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    Linton wrote: »
    Most funds, 80% from a random sample from trustnet, are single priced. But yes you do need to take account of the spread with two price funds.
    Something like 99% of unit trusts use dual-pricing and probably 95% or more of OEICs have a single price.

    But I don't think guestimates of percentages help much. What's important is the actual funds you hold.

    For the purpose of making comparisons between funds you need to take into account all costs including initial charges, additional spreads, any dilution levy and all available rebates and should be aware that the figures shown on Trustnet don't take any of those factors into account.

    You should also be aware that when a discount broker discounts the entire initial charge that doesn't mean that there'll be no spread and the spread won't necessarily be constant.
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