Converting to Clean Class Funds- is this calculation correct?

bobsy31

Hi

On HL there is an option to move to a clean class of fund
I am having a blonde moment and wanted to make sure I have this calculation correct!

Existing Fund: AMC minus Loyalty Bonus = X

New Fund Class: AMC minus Loyalty Bonus = Y

If X is greater than Y then it is best to convert, if Y is greater than X then it is best not to convert. Is that right?

My confusion was reading somewhere (perhaps incorrectly) that you do AMC PLUS loyalty bonus on the New fund class calculation.

Many thanks

coyrls

Existing Fund: AMC minus Loyalty Bonus = X

New Fund Class: AMC = Y

bobsy31

Some of the New Funds offer a loyalty bonus too though so you have to factor that in - so would you minus it from the AMC like for the old class or add it?

Lokolo

bobsy31 wrote: »

Some of the New Funds offer a loyalty bonus too though so you have to factor that in - so would you minus it from the AMC like for the old class or add it?

What funds? Clean class funds have no rebate and therefore no "loyalty bonus".

The cost of an old share class fund is [AMC - Loyalty Bonus], the cost of a new clean share class fund is [AMC] (technically you should use TER)

e.g. Fund A Class X costs 1.30% but rebates 0.5%, Fund A Class Y costs 0.75%

Class Y is cheaper by 0.05%.

You also have to consider platform charges, some platforms don't charge for holding old class funds, but do charge for clean class funds.

grey_gym_sock

there are rebates on some clean funds via HL. when they've negotiated a better deal with the fund manager, for some funds it's in the form of a cheaper class, but for others in the form of rebates. (this is allowed under RDR2, so long as the rebate goes 100% to the customer, not the platform, and is paid in extra units, not cash.)

you should subtract the rebate from the AMC.

bobsy31

Some examples:

1)
Axa Framlingtton growth:

Existing Class is: AMC 1.5% minus Loyalty Bonus 0.75% = 0.75%

New Class: AMC 0.75%

As the % is exactly the same is there any point in converting this or any others like this?

2)
Threadneedle European Smaller Co's

Existing Class is: AMC 1.5% minus Loyalty Bonus 0.75 = 0.75%

New Class: AMC 0.75% with a Loyalty Bonus of 0.055%

So in this instance it would be worth converting ones like this to the New class as the % is less than the existing class?

3:
CF Ruffer

Existing class: 1.5% AMC (no liyalty bonus)

New class: AMC of 1.2%

this one is an easy one :-)

Thanks

talexuser

I think any advantage/disadvantage is only there for just under 2 years since by end of March 2016 all funds will have to be clean class.

A difference of say 0.05% on a small fund is not much and only worth it with free switching and not being out of the market for a couple of days during the switch... and if the clean platform charge does not outweigh the saving compared to bundled rebates?

grey_gym_sock

well, that's 2 out of 3 better converted, and 1 no difference either way.

HL are offering to do free conversions some time in june, without going out of the market.