realistic rates of return

peterg1965

Sorry wrong thread!

jamesd

EdInvestor, you're suggesting that money is vanishing in fees. That money has to come from the value of the fund. The value of the fund is what is reported in the performance graphs and numbers. It's painfully obvious when a fund is performing less well than others - and investors who watch their investments will select those funds that deliver the best results. After all of those costs have affected the value changes in the charts.

So long as the charts and performance numbers have to be based on the total value of the fund, the fund managers can't hide the effect of every cost on the performance of the fund.

Compare the Old Mutual and SLI UK Smaller Companies funds. Old Mutual raised their fees by 0.25% from 1 Feb after capping the fund size, so theirs is now 1.75%. Here are the recent performance figures:

1Month: OM: 0.87 SLI -0.62
3Month: OM: 4.99 SLI 3.20
6Month: OM: 13.38 SLI: 10.37

I think I'll take the fund with the higher fees that grew the value I receive by 3% more than the other one after charging me 0.125% more in fees over the six month period.

I also suggest that you read the reports or voting documents of the funds you hold. You might even want to exercise your right as a unitholder in the fund to vote on the matter. You might not get these documents if you're not a direct holder of the fund.

EdInvestor

James

The most important statistics to look for when checking the impact of transaction costs are portfolio turnover. The figures are compiled by a firm called Fitzrovia, but are unfortunately only available on a paid-for basis, not freely to retail investors.

You can try Googling, stats for some funds are available.

jamesd

EdInvestor, while I have academic curiosity about those costs, the stat that matters most to me is how the profit I may make from the fund compares to the profit I may make from it's competitors. The graphs and published performance numbers show the history of that, after all of those costs.

I do look at the costs when deciding what to buy but the performance after all costs comes first.

This is a much biggger issue for buyers of tracker funds, where the costs are a much better indicator of how much the fund is likely to underpeform its index by.

dipsomaniac

edinvestor, the fees/charges you are talking about really are insignificant and unless the porfolio is never traded - unavoidable.

it doesn't matter how you look at it the most important statistic is what your £100 at the start of your investment is worth on a rainy day.

a porfolio will constantly be buying and sell the underlying holdings and the largest cost, stamp duty, is unavoidable when buying the physical asset.

EdInvestor

dipsomaniac wrote: »

edinvestor, the fees/charges you are talking about really are insignificant and unless the porfolio is never traded - unavoidable.a porfolio will constantly be buying and sell the underlying holdings and the largest cost, stamp duty, is unavoidable when buying the physical asset.

They are not insignificant believe me.

They double the cost of your investment - over 25 or 30 years this will eat up half of your returns :mad:

http://www.pensionscommission.org.uk/publications/2004/annrep/chapters/ch6.pdf

Click to page 14 for full details of these hidden charges.

If you want to avoid paying them, buy shares directly via a broker with no annual fee and trade as little as possible.

dunstonh

They are not insignificant believe me.

They double the cost of your investment - over 25 or 30 years this will eat up half of your returns :mad:

If you arent in it, you dont get it. Its the bottom line that matters. I still dont see where you are getting half the returns being eaten up. The RIYs being show 1.5-1.8% p.a. which on a 10% p.a. return is hardly half the money.

If you want to avoid paying them, buy shares directly via a broker with no annual fee and trade as little as possible.

And not have the risk diversification and asset allocation or sector allocation you get with funds.

Dealing in shares can be cheaper but it doesnt mean you will get more. I would be interested to hear how your sharedealing example works for your Chinese exposure or property. How much time do you spend researching which Asia Pacifc, European and N American stocks you want to hold. How much has that time cost you?

EdInvestor

I would be interested to hear how your sharedealing example works for your property.

You can hold REITS of course for property ( eg Land Securities as an example). Offshore listed investment trust gives access to bricks and mortar funds.Obviously the latter are not sub ject normally to high levels of portfolio turnover so these hidden costs are not such a problem.[Though we can note last week's brouhaha over pricing as an example of formerly hidden costs]

How much time do you spend researching which Asia Pacifc, European and N American stocks you want to hold.

As I 've said many times you can obtain quite adequate esposure to foreign profits via the multinationals loisted on the FTSE with major global exposure, without needing to bother with foreign shares/funds. Obviously higher charges (which occur with overseas funds) diminish returns and foreign currency risk is very likely to do the same.

There's no evidence that you get higher returns by investing in foreign markets, and especially as markets are increasingly interconnected in our 24/7 investing world, you may well find that all the funds perform in more or less the same way.

dunstonh

.[Though we can note last week's brouhaha over pricing as an example of formerly hidden costs]

Just because some people didnt know they could do that or hadnt noticed it happening before (it didnt just magically happen last week), doesnt mean its hidden.

As I 've said many times you can obtain quite adequate esposure to foreign profits via the multinationals loisted on the FTSE with major global exposure, without needing to bother with foreign shares/funds.

And I and others have said many times that you are wrong.

There's no evidence that you get higher returns by investing in foreign markets

Hmm, so the FTSE is performing on par with India, China and other Far East markets?

EdInvestor

So far this year the world index is up 10.6%, the US is up 8.9%, the UK (FTSE 100) is up 10.5% , all in dollar terms. There is little difference.

The Hong Kong market, which is the market you will be mainly be invested in if you buy a China fund, is up 12.7%. India is up 18.5%.Russia - last year's fancy - is up 3.8% and serial disappointer Japan manages to scrape in last with 2.5%.

This is not stellar stuff.Why bother taking the risk?