Pension funds... bid-offer spread...

Millyonare

For those who actively monitor or manage their own pension funds, do you know (in % terms) the size of the bid-offer "spread" in each fund that you are currently paying?

For example, someone has £100k invested in a FTSE100 fund inside their private pension wrapper... the bid (sell) price of that FTSE100 fund today is 100p, the offer / ask (buy) price is 110p, giving a fund "spread" of 9-10%... That is 10p [divided by] 100p or 110p.

Not looking for any personal details, of course. Just some real-world, top-level benchmarks of the % "spread" that a fund is charging. It can be inside a workplace pension, a SIPP, etc. Any type is fine. But it must be inside a pension, and NOT something like an ISA or general investment account. I have calculated my own % number, and will post here, but curious to hear what others might be getting charged.

Spread = ???

dunstonh

For those who actively monitor or manage their own pension funds, do you know (in % terms) the size of the bid-offer "spread" in each fund that you are currently paying?

Virtually all pension funds on new plans bought since about 1998 have been mono charged. i.e. single priced with AMC only.

 It can be inside a workplace pension, a SIPP, etc. Any type is fine. But it must be inside a pension, and NOT something like an ISA or general investment account. 

SIPPs use the same funds as ISAs & GIAs.     It would only be some direct assets and Unit Trusts where a spread could exist.   OEICs, which is what most would use, are also single-priced.   Spreads on UTs since 2013 have been tiny to almost zero

Workplace pensions won't have spreads.

For example, someone has £100k invested in a FTSE100 fund inside their private pension wrapper... the bid (sell) price of that FTSE100 fund today is 100p, the offer / ask (buy) price is 110p, giving a fund "spread" of 9-10%... That is 10p [divided by] 100p or 110p.

I am not sure that even pre-1980s it was as high as that. Spreads were more like 5% back then.

Spread = ???

zero in my case.

Keep_pedalling

I am not sure why you are asking for funds in pensions only as , a) you have posted in the savings and investments board and b) funds aren’t priced differently in different wrappers.

All my funds are single priced so spread = 0

arnoldy

Interesting and useful information, but the fact is there must be a "spread" paid by the investors. It is just a little opaque.

If a pension fund gets new money they have to invest it so they will almost always pay 0.5% stamp duty (UK, but other countries also operate similar) to buy shares or ITs or funds (which pay the stamp duty when they, in turn, buy shares). Then there is the underlying spread on the investments the pension funds make, plus the dealing costs and admin. 

All this will somehow be "paid" by the pension fund i.e. investors. This I believe is on top of AMC which does not include dealing costs. In a mono charged fund the spread costs for new money are absorbed by everyone, not just new money. But probably all evens out in the end?

jimjames

Some fund managers use a dilution levy to handle that situation and other swing pricing.

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/swing-pricing

Linton

arnoldy said:

Interesting and useful information, but the fact is there must be a "spread" paid by the investors. It is just a little opaque.

If a pension fund gets new money they have to invest it so they will almost always pay 0.5% stamp duty (UK, but other countries also operate similar) to buy shares or ITs or funds (which pay the stamp duty when they, in turn, buy shares). Then there is the underlying spread on the investments the pension funds make, plus the dealing costs and admin. 

All this will somehow be "paid" by the pension fund i.e. investors. This I believe is on top of AMC which does not include dealing costs. In a mono charged fund the spread costs for new money are absorbed by everyone, not just new money. But probably all evens out in the end?

In the case of OIECs which form the great majority of "funds" , the fund managers take all their expenses directly from the funds.  So yes dealing costs are absorbed by all investors.  The dealing price of such a fund is the current value of all its assets.

A bid/offer spread makes a lot of sense if the underlying assets are illiquid. ie cannot be readily bought and sold.  A particular example is directly held property - clearly property cannot be traded as money moves in and out of the fund.

Prism

Somewhere between 0.05% for ETFs and 2% for certain investment trusts. However the bulk is in OEICs with 0% spread. Overall I would estimate around 0.1%

Albermarle

The Investment Trusts I have tend to have a spread between 0.5% and 1.0%, although it can go a little higher sometimes.

Malthusian

If a pension fund gets new money they have to invest it so they will almost always pay 0.5% stamp duty (UK, but other countries also operate similar) to buy shares or ITs or funds (which pay the stamp duty when they, in turn, buy shares).

Not necessarily. If the fund is experiencing net outflows, the new money goes to the investors coming out. No new shares are being bought so no 0.5% stamp duty.
This why a flat "dilution levy" is arguably unfair - everyone gets charged 0.5% to cover stamp duty even though it is perfectly possible that the fund isn't paying any. That makes it a stealth charge for the fund manager. Vanguard dropped its dilution levy a while ago in favour of swing pricing (which takes into account whether the fund is experiencing net inflows or outflows).

Linton

Albermarle said:

The Investment Trusts I have tend to have a spread between 0.5% and 1.0%, although it can go a little higher sometimes.

Yes, but that is purely because ITs are shares and there is a bid/offer split on all shares.  That is how the exchanges and market makers get paid.

Albermarle

Linton said:

Albermarle said:

The Investment Trusts I have tend to have a spread between 0.5% and 1.0%, although it can go a little higher sometimes.

Yes, but that is purely because ITs are shares and there is a bid/offer split on all shares.  That is how the exchanges and market makers get paid.

Yes I am aware of that. I was just responding to the post below, as I thought a bit of extra info might help.

Somewhere between 0.05% for ETFs and 2% for certain investment trusts. However the bulk is in OEICs with 0% spread. Overall I would estimate around 0.1%