Low costs are good predictor of performance

Ark_Welder

psychic_teabag wrote: »

I thought things like trading costs were additional overheads over and above the TER. I think I heard that active managers tend to churn their funds quite a lot. So maybe higher TER also implies additional costs due to higher churn. But this is pure speculation.

Trading costs do not form part of the TER. However, trading costs are reported in the long-form of funds' annual reports, so the true costs of dealing can be determined.

koru

darkpool wrote: »

yeah, hardly evidence at all.

"Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile."

To be fair though, they were lumping funds into about four or five asset classes. I assume they were using American classifications. And although they were using different lengths of time, they all ended on the same date, so they would all have had at least one year in common. Nevertheless, the cheapest quintile consistently won in each instance, which is hard to explain away by pure chance.