IMA's Saunders: no such thing as hidden charges
From Regulation Jan 27 2012 BY: Esther Armstrong
, Senior Reporter
, Portfolio Adviser
The IMA's chief executive, Richard Saunders, has come out against accusations of hidden charges in the funds industry, saying they are a complete myth.
His comments followed the release of new analysis from the IMA which examined how trading costs impact investor returns.
These costs are incurred as a result of the manager making investment decisions to pursue the fund's investment objectives and strategies, the IMA said.
"While some commentators claim they are not disclosed to investors, these costs are readily available in fund literature and investment fund regulation requires their disclosure," it added.
The association's latest analysis showed that for actively-managed funds transaction costs were 0.31% of average assets, of which two-thirds were accounted for by stamp duty. Comparatively, in tracker funds transaction costs totalled 0.06% of average assets.
But it said on average, the higher transaction costs in actively-managed funds are "more than offset by investment returns".
The IMA's research compares the net return of 129 active and passive funds in the UK All Companies Sector with the returns of the FTSE 100 and FTSE All Share indices in 2009.
It also looked at the annual difference over the ten year period to December 2011 between the return on the benchmark and what the investor would have received after charges.
FTSE all-share trackers returned on average 3.9% a year, 0.8% lower than the benchmark, which is in line with the group's average TER of 0.8%.
Meanwhile, active funds returned on average just over 4% a year, 0.6% below the market, which Saunders said showed a significant recouping of their average TER of 1.5%.
Saunders' opinion on hidden charges (or the lack thereof) may have merit, but the average returns of the active funds sector is hardly a ringing endorsement or a motivation to invest in them. More on this to come soon.