Funds charges

MTB1986

I’m considering moving my investments held in a former pension to the ethical funds, I’ve got £26k invested and the current charges for the existing non-ethical funds are 0.07% per annum. The charges for the ethical funds are 0.78% per annum, so considerably more. I’m no longer contributing to the pension, so no further money will be added. 

From a purely monetary perspective, are the charges for the current investments particularly competitive, and are the charges for the ethical investments particularly high? 

ewaste

What are the underlying funds and investments, the first could be a simple equity index fund tracking the FTSE100 or S&P500. The latter could be a managed ESG/SRI fund investing globally.

My own pension offers a UK Equity Fund at 0.05% and also offers the BG Positive Impact Fund at 0.51%. They are entirely different beasts so not directly comparable...

MTB1986

I see; the existing fund is a passive global equities index fund, and the ethical proposed fund is an actively managed sustainable equities fund. 

Linton

MTB1986 said:

I’m considering moving my investments held in a former pension to the ethical funds, I’ve got £26k invested and the current charges for the existing non-ethical funds are 0.07% per annum. The charges for the ethical funds are 0.78% per annum, so considerably more. I’m no longer contributing to the pension, so no further money will be added. 

From a purely monetary perspective, are the charges for the current investments particularly competitive, and are the charges for the ethical investments particularly high? 

 
What funds are you comparing? Perhaps one is a cheap index-tracker and the other actively managed. Also you need to be very clear exactly which funds you are using to get the charging data.  For example Pension fund charges may or may not include platform charges.

The charges of ethical funds need not be particularly high compared with their broader equivalents.  "Ethical" just implies that the fund manager is choosing from a smaller range of eligible underlying companies.  The list of such companies is probably bought-in.    For example looking at abrdn's Global Equity and Global SRI Equity the charges are the same. 



There are bigger issues to consider...

 - There are different flavours of "ethical". Do the ethics of the fund match your ethics?  You may find the companies that are included and excluded surprising.
 - Strict ethical funds like those based on Shariah can be unbalanced with a very high % of tech compared with the full index since whole large sectors may be automatically excluded.
 - I believe though have not checked that ethical funds have tended to uinderperform their broader equivalents - perhaps the devil has the best tunes.

gm0

Ethical passives (I use one) - are just the same as global developed equities (or some other regional) index i.e. a stock list.  But with the "sin" stocks removed.  Gambling, guns, booze, tobacco - whatever the particular esg definition list provides for.  Mine is a FTSE4Good one.

Sin stocks have their day in the sun and some types are heavily cash generative (dividends). 
So the knockouts can cause a "lag" in performance at points in the cycle.  The price you pay for modest virtue.

Clearly the net position depends in practice on what you are effectively holding instead for the £ not invested in the knockouts.  For a while the mega cap US tech boom may have caused global funds to have invested more than half the missing piece in the US and mostly in a few megacap stocks that overcame ethical lag with big gains (and volatility) at least for a time.

Active ethical - is whatever the fund mandate says it is.
But check (backtest data on trustnet if available) see if it is actually different from passive investment.
And look carefully at the portfolio info that is disclosed - top 20 etc.

And be aware that there is no single market price even for the same thing. 

Schemes have (historic) deals in aggregate that they struck with fund managers. 

Example - my old occupational pension doesn't have a basic global passive at all. Annoying.  A simple fund at 0.1% or so would be just the ticket.   It only has a more complicated and much more expensive active global equities fund choice and then multi-asset choices.  

But it does have a legacy ethical global passive indexer at 0.07%. This is also retailed by the underlying fund manager via other routes at 0.3%). 

Same investments - two prices.

0.3% is arguably on the expensive end for a passive where 0.11% or so is arguably par. 
0.07% is towards the cheap end.

>0.5% for something which *behaves* like a passive is - unattractive

Make sure your active choice is indeed active and in a way that you like

dunstonh

From a purely monetary perspective, are the charges for the current investments particularly competitive, and are the charges for the ethical investments particularly high? 

Ethical investing will always cost more than conventional investing, ESG investing or SRI investing because only funds that match your ethical beliefs can be used.

It is possible to get cheaper or match conventional pricing if you are ESG or SRI focused and less specific with your ethical beliefs.

 and the ethical proposed fund is an actively managed sustainable equities fund. 

Just one?   Usually ethical investors need multiple funds to blend the portfolio.   Do you mean ethical or is more SRI or ESG?   And is it more of a generalist approach with no specific ethical beliefs?

MTB1986

dunstonh said:

From a purely monetary perspective, are the charges for the current investments particularly competitive, and are the charges for the ethical investments particularly high? 

Ethical investing will always cost more than conventional investing, ESG investing or SRI investing because only funds that match your ethical beliefs can be used.

It is possible to get cheaper or match conventional pricing if you are ESG or SRI focused and less specific with your ethical beliefs.

 and the ethical proposed fund is an actively managed sustainable equities fund. 

Just one?   Usually ethical investors need multiple funds to blend the portfolio.   Do you mean ethical or is more SRI or ESG?   And is it more of a generalist approach with no specific ethical beliefs?

I’m not sure how to tell - this is the fund information sheet, can you tell from this? 

dunstonh

I’m not sure how to tell - this is the fund information sheet, can you tell from this? 

That is not an ethical fund.  It is an off-the-shelf SRI fund.     I have previously referred to them as a generalist fund for someone with generalist views.  i.e. where don't have any particularly strong views but just feel you want to invest responsibly/sustainably.

As you are looking at a more generalist responsible fund, you have an awful lot of choice and you can use active or passive to achieve what you are after.

It is only when you have positive/negative screening to suit your views that it becomes harder to have more passive in the portfolio than active.

Linton

MTB1986 said:

dunstonh said:

From a purely monetary perspective, are the charges for the current investments particularly competitive, and are the charges for the ethical investments particularly high? 

Ethical investing will always cost more than conventional investing, ESG investing or SRI investing because only funds that match your ethical beliefs can be used.

It is possible to get cheaper or match conventional pricing if you are ESG or SRI focused and less specific with your ethical beliefs.

 and the ethical proposed fund is an actively managed sustainable equities fund. 

Just one?   Usually ethical investors need multiple funds to blend the portfolio.   Do you mean ethical or is more SRI or ESG?   And is it more of a generalist approach with no specific ethical beliefs?

I’m not sure how to tell - this is the fund information sheet, can you tell from this? 

From the fairly limited information available It seems that this fund invests in medium/smaller companies that do specifically green things rather than investing widely in a broad range of companies that dont do bad things. Its largest holding, Waste Connections Inc, is a US company worth $38B.- comnparable with say BAE or Lloyds Banking.  Compare this with Apple which is worth about 80 times as much

In my view this would make it a poor investment as a core holding due to its limited diversification, but could perhaps be considered rather as a relatively small side-punt .

MTB1986

Thank you, all. Food for thought and I’ll go away and improve my own understanding and do a bit more research now you’ve given me a basic understanding. Appreciate it.