TER's - How are they calculated?

Rollinghome

Richard_DandR wrote: »

Of course Rollinghome as usual exaggerates the dealing charges effect on the TER.

You say I "as usual exaggerates the dealing charges effect on the TER". I recall making just one other post mentioning the costs over and above the TER. So was that an unintended mistake on your part, or are you just a person prone to err... exaggeration?

If you would care to read more carefully what I said it was "this can mean a further 1-2% a year in addition to the published TER". That does not mean that all funds will have the same costs. I assume you understand the difference.

For some odd reason you choose IP High Income to prove otherwise. That is hardly a typical fund. With funds of over £10 billion it dwarfs even the Fidelity SS by more than three times and it invests almost exclusively in large caps with their associated narrow spreads. Due to it's vast size it's no longer possible or cost effective for it to trade freely without moving the markets - which incidentally is likely to hinder future performance. Possibly as a consequence of that when last I looked the annual PTR of the High Income fund was below 40% whereas other IP funds had been over 250%.

Again if you take time to read what I said it was "the trading costs of the fund" and not simply the dealing costs that are important. As darkpool has pointed out to you, the dealing cost are not the only costs of trading, and for a fund as large as IP HI brokerage will be by far the least significant part of trading costs. In addition to dealing charges there will be the spreads, much higher in small cap funds, the 0.5% SDRT, and most significant of all for a fund as large as IP high Income, the cost of market movements caused by it trading, whether buying or selling - aka the "price impact".

FYI the turnover weighted average spread on the London Stock Exchange is about 75 bp.

It seems to be widely accepted that the average roundtrip cost of trading for a UK fund is about 1% pa. As pointed out by darkpool this estimate is agreed by Alan Miller formerly of New Star here http://www.moneyobserver.com/issue/features/time-call-fund-groups-account and some more figures for you here http://www.comparativetables.com/more/princ.htm For some funds the figure will be lower and others with a high PTR much higher.

Richard_DandR wrote: »

The formula for the TER calculation is in FSA regulations and not something designed by the fund management industry to deceive unit holders.

You may like to read the FSA paper 'The Price of Retail Investing in the UK' which points out that:

"Retail investors cannot easily measure the price of investing through the investment funds they must choose between, in part because a significant element of this price is mostly not disclosed at all."

On the basis of the paper, a fund with a 100% turnover, i.e. just above average, would add a further 1.8% per annum on top of all other ‘visible’ charges. See http://www.hhw-uk.com/hiddenInvestment.asp

Or the Fitzrovia Report which states: "Transaction costs in the UK are currently 'hidden' and the issue needs to be raised so that it can be addressed and, potentially, so costs can come under greater control." (page 232)

Rollinghome

dunstonh wrote: »

There is some that show it is and some that show it isnt.

Indeed.

I believe Standard & Poor give their top *** rating to just 9 funds in the UK all companies sector, 4 of those are tracker funds.

They give their *** rating to just one fund in the North America sector, and it's a tracker fund.

Of the two *** rated Japan funds, one is a tracker.

This seems to suggest that they should get more of a consideration than they get especially from financial advisers who claim to be unbiassed despite being paid huge commissions from the fund managers to sell their more profitable managed funds.

Or could that be the reason they prefer to select some iffier evaluation and disregard that of the mighty Standard and Poor?

That doesn't mean in my view that the costlier managed funds don't ever have a place, only that they are apparently sold whether appropriate or not. Post RDR when commission is banned there is every reason to expect a change.