Want 5% on £300k

darkpool

Aegis wrote: »

You haven't shown that this 3% figure even exists yet. The TER is designed to include most of the costs of running a fund, including the dealing costs, auditor fees, etc, so I fail to see how a fund with less than a 2% TER could actually be keeping another full 1% of charges hidden from investors.
most definitely NOT kept by the fund manager.

It was in the Financial Times/ Investors' Chronicle. If you don't believe me you could ask your IFA if the TER covers dealings costs. If he says it does get him to write it down, then in twenty years time you'll be able to sue him.

3% a year, that really is a drag on performance

darkpool

"TERs also exclude the costs of transactions, which will sometimes be significant. Comparing TERs between active funds with very different styles or levels of turnover might not say much, and it will be worse when the alternative being considered has very low transaction costs, such as an index tracker fund."

ouch!!!!! the above is from citywire.co.uk it looks like TER should be renamed Partial Expense Ratio. Anyone trust an industry that doesn't know the meaning of total? or perhaps the industry doesn't think dealing costs and stamp duty are an expense?

Aegis

darkpool wrote: »

"TERs also exclude the costs of transactions, which will sometimes be significant. Comparing TERs between active funds with very different styles or levels of turnover might not say much, and it will be worse when the alternative being considered has very low transaction costs, such as an index tracker fund."

ouch!!!!! the above is from citywire.co.uk it looks like TER should be renamed Partial Expense Ratio. Anyone trust an industry that doesn't know the meaning of total? or perhaps the industry doesn't think dealing costs and stamp duty are an expense?

You still haven't actually provided a link to this 3% figure.

Looking around, there are occasional comments about some funds where the additional expenses (i.e. over the TER) get as high as 1%, in which case you'd have to have the most expensive TER with the most expensive additional costs, and I'm guessing these are extremely rare. Like I said before, all of the funds I currently hold have TERs well under 2%, and the same source where I found the 1% maximum indicated that the lowest identified additional expenses were just 0.09%.

In short, even if there are a couple of funds out there with 3% charges per year, they are the minority, not the norm.

psychic_teabag

darkpool wrote: »

an interesting graph. does it include dividends though? if you take the dividend yield as 4% the active accumulation funds should really deliver FTSE + 4% a year to match the FTSE?

The trailing bit of the url is "totalReturn=true" so I assume it does include dividends.

Aegis

Aegis wrote: »

You still haven't actually provided a link to this 3% figure.

Looking around, there are occasional comments about some funds where the additional expenses (i.e. over the TER) get as high as 1%, in which case you'd have to have the most expensive TER with the most expensive additional costs, and I'm guessing these are extremely rare. Like I said before, all of the funds I currently hold have TERs well under 2%, and the same source where I found the 1% maximum indicated that the lowest identified additional expenses were just 0.09%.

In short, even if there are a couple of funds out there with 3% charges per year, they are the minority, not the norm.

Incidentally, just to follow up on my post, the term "Total Expenses Ratio" is used to cover the fund management charges and any incidental expenses that aren't included in the underlying performance of the fund. In other words, if you were buying and selling the shares for yourself, you could reduce the TER to zero, but would still face the same costs for actually transacting your own purchases and disposals. As such, I can see why they wouldn't include those costs in the TER, but I don't think it's right to add them to the cost of running the fund compared to an index. Effectively this is already included in the underlying return, so why add it again.

Regardless, the ultimate question is whether the fund manager adds something worth paying for. In my own case, the majority of my area-focused funds have outperformed their respective markets in most timescales. This may have a lot to do with the fact that I like inefficient/developing markets where plenty of scope to outperform the index still exists. However, even the UK funds I hold have generally done very well compared to their benchmarks, so maybe I'm just lucky.

darkpool

Aegis wrote: »

Looking around, there are occasional comments about some funds where the additional expenses (i.e. over the TER) get as high as 1%, in which case you'd have to have the most expensive TER with the most expensive additional costs, and I'm guessing these are extremely rare. Like I said before, all of the funds I currently hold have TERs well under 2%, and the same source where I found the 1% maximum indicated that the lowest identified additional expenses were just 0.09%.

In short, even if there are a couple of funds out there with 3% charges per year, they are the minority, not the norm.

The average UT holds an investment for about 6 months. Stamp duty is 0.5%, by the time you add on broking fees i think it safe to add on 1.5% to TER. Have a google on "soft commission". It details the practice of stockbrokers giving UT managers freebys like free analysis/ software etc.

Aegis

darkpool wrote: »

The average UT holds an investment for about 6 months.

Source please.

Stamp duty is 0.5%, by the time you add on broking fees i think it safe to add on 1.5% to TER.

Only if a) your holding period average is correct and b) the dealing costs sum to an additional 0.5%

Making this simple, can you name, say, 5 commonly held unit trusts or OEICs with total costs demonstrably over 3%?

darkpool

Aegis wrote: »

Source please.

Only if a) your holding period average is correct and b) the dealing costs sum to an additional 0.5%

Making this simple, can you name, say, 5 commonly held unit trusts or OEICs with total costs demonstrably over 3%?

The Financial Times is my beacon of light in the money management darkness.

I can't be bothered googling every UT and IT annual report. But looking at the Portfolio Turnover Rate for Henderson Global Innovation showed 167% to 31/5/10 and 229% to 30/11/09. That's near enough an average holding time of 6 months. So for that UT annual fees will be close to TER + at least 1.5%

If you think i'm lying fair enough. Just have a look at your annual reports and see what the Portfolio Turnover is though.

darkpool

"He concluded that the cost of a “round trip” trade in the UK was 1.8%. A “round trip” is the selling of one company’s shares and replacing them with another for the same value."


"A Government commissioned report into retail investments by Paul Myners estimates that portfolio turnover costs UK investors £2.5 billion each year. The UK has only recently fallen into step with the rest of the world in making it compulsory for fund managers to disclose their portfolio turnover. This revealed that many of the best selling UK funds have portfolio turnover rates of between 100% and 200%. "

So if a UT has a 100% turnover you add on 1.8% to the TER. If it's 200% you add on 3.6% to the TER.

psychic_teabag

FWIW this monevator article contains a link to
this report
which tries to equate turnover rate to an equivalent effective annual charge.