Funds fees query

freemoneyrocks

Hi all

I've been investing in Invesco perpetual's high income fund for approx 18 month. I started this on a recommendation knowing little about investment funds. As the pot of money grows I've become more and more interested in the fees being incurred. This fund has a TER of 1.69% which seems very high when compared to the fees bring quoted on here for some tracker funds.

What is the difference between this fund and a tracker fundand and am I being stitched up on the fees?? Presumably the idea is that IP manage the fund and outperform the trackers to justify the fee??

Lokolo

Yes that's pretty much it. Trackers just that, a tracker, there's no real human thought process. Computers don't ask for a salary, humans do.

With managed, you have a person running it. Sometimes a person will think X part of the FTSE will progress well in the next 12 months and put more money into this, this could end up as something good, or something bad.

freemoneyrocks

Oh ok hence you pay more for the service and only history will assist in determining if the extra fee is justified.

dunstonh

his fund has a TER of 1.69% which seems very high when compared to the fees bring quoted on here for some tracker funds.

Thats like comparing an apple with an orange. One is run by computer and gives you typically mid table performance but consistency. One is run by a manager or team with the aim of outperformance.

What is the difference between this fund and a tracker fundand and am I being stitched up on the fees??

What you do want? Do you want to pay less and get less or do you want to pay more and get more? (or the potential for more).

Oh ok hence you pay more for the service and only history will assist in determining if the extra fee is justified.

Lets compare the closest equivalent UT tracker. HSBC all share tracker vs the fund you have. Since Jan 1995, the Inv Perp High income fund has returned 529.82%. The HSBC tracker has returned 217.70%.

Which would you prefer? Still think you are being stitched up?

freemoneyrocks

Dunstonh - that is crystal clear! Suddenly tracker funds are less interesting!

Would the lower return of a tracker be offset by lower risk?

Lokolo

freemoneyrocks wrote: »

Dunstonh - that is crystal clear! Suddenly tracker funds are less interesting!

Would the lower return of a tracker be offset by lower risk?

If the funds are in the same asset class, then no difference in risk.

And although Dunston has pointed out your fund has done incredibly well, not ALL funds beat trackers, a lot do, but not all.

dunstonh

Would the lower return of a tracker be offset by lower risk?

it isnt lower risk. They are typically consistent with the average for that sector (exceptions apply. e.g. FTSE250 is higher risk than UK all companies sector average).

Dunstonh - that is crystal clear! Suddenly tracker funds are less interesting!

Dont rule them out.

Managed funds tend to be focused on certain areas. Some will do better in certain parts of the economic cycle and then poorly in other parts of that cycle. So, if you use managed funds then you need to keep an eye on the investments more and be prepared to adjust. So, they can be up the top end one minute and down the bottom next.

Tracker funds give you benchmark consistency. You know you are going to be mid-table. You dont have to be constantly reviewing them.

There are also certain managed funds that are obvious choices and the one you have is one of those. Some sectors have very few,or any stand out choices where picking a managed fund is a guess and a tracker can make perfect sense. Other areas have little or no tracker coverage and managed funds make the obvious choice.

The best position to take is to accept that both can be right in the right circumstances. Dont go pro-tracker or pro-managed. Go with the best one at the right time.

westy22

Since Jan 1995, the Inv Perp High income fund has returned 529.82%. The HSBC tracker has returned 217.70%.

So, that decision would have been a great one if you had bought Inv Perp High Inc (IPHI) in January 1995 - but it's May 2011! Will it be the same when you look back on the period May 2011 to May 2027? Who knows?

The big danger is that you look back at the period Jan 95 to May 11 and buy IPHI now at a current high price and high TER; by May 2013 it hasn't been doing well and so you sell IPHI at a low price and switch into XYZ High Income (which has done well over the period) and is at a high price. Nobody ever got rich buying high and selling low!

oldfella

the TER includes commission paid to the broker of 0.5% which you can get repaid to you in whole or part - see Cavendish and Hargreaves Lansdown

Reaper

oldfella wrote: »

the TER includes commission paid to the broker of 0.5% which you can get repaid to you in whole or part - see Cavendish and Hargreaves Lansdown

That is a good rebate from Cavendish, but note that HL only gives 0.25% back.

mr_fishbulb

freemoneyrocks wrote: »

What is the difference between this fund and a tracker fundand and am I being stitched up on the fees?? Presumably the idea is that IP manage the fund and outperform the trackers to justify the fee??

A tracker fund wouldn't have got out of BP a few months before they tanked. Neil Woodford did (admittedly he did if for reasons completely separate to the upcoming "loads of oil gushing out through a hole on the ocean floor" incident).