CityPress - - Business & Tenders -

Nathan be­lieves that costs should be as low as pos­si­ble, and in­vestors should only be charged 1% to 1.5% at most. He ex­plains that, con­sid­er­ing that you are gen­er­ally re­ceiv­ing 10% a year in re­turns in a long-term bal­anced port­fo­lio, the fee is 15% of your re­turn.

“But it’s much worse in the long run be­cause of the com­pound­ing im­pact. So you re­ally have to man­age your to­tal fees, and you must en­sure you are get­ting value for what­ever fees you are pay­ing,” he says.


El­ize Botha, the man­ag­ing di­rec­tor of Old Mu­tual Unit Trusts, which pro­motes pas­sive and ac­tive funds, says there is still a place for ac­tively

If you want to in­vest in ac­tively man­aged funds, there are ways you can cut costs. For starters, loy­alty can save you some money.

Chad Shar­rock, a fi­nan­cial ad­viser at At­tieh & As­so­ci­ates, says: “If you in­vest through an as­set man­age­ment com­pany’s own funds, the fees would tend to be cheaper.”

You could save on ad­vice fees be­cause it’s not im­pos­si­ble to choose your own funds. How­ever, although the Ef­fec­tive An­nual Cost stan­dards have come into ef­fect, which en­able you to com­pare ap­ples to ap­ples, you may still ben­e­fit from fi­nan­cial ad­vice, par­tic­u­larly as there are so many unit trusts on the mar­ket – re­port­edly about 1 300 and count­ing – to choose from.

Fi­nally, you could save by not us­ing a fund plat­form.

Ul­ti­mately, choos­ing funds with lower charges will most likely en­sure out-per­for­mance. This is ac­cord­ing to Morn­ingstar, which re­leased anal­y­sis last year in a re­port en­ti­tled Pre­dic­tive Power of Fees: Why Mu­tual Fund Fees Are So Im­por­tant. It showed that funds with higher charges are not only more likely to un­der­per­form, but may shut down all to­gether.

Ac­cord­ing to Morn­ingstar, us­ing ex­pense ra­tios to choose funds helped in ev­ery as­set class and in ev­ery quin­tile from 2010 to 2015.

“For ex­am­ple, in US eq­uity funds, the cheap­est quin­tile had a to­tal re­turn suc­cess rate of 62%, com­pared with 48% for the sec­ond-cheap­est quin­tile; then 39% for the mid­dle quin­tile; 30% for the sec­ond-prici­est quin­tile; and 20% for the prici­est quin­tile. So, the cheaper the quin­tile, the bet­ter your chances. All told, cheap­est quin­tile funds were three times as likely to suc­ceed as the prici­est quin­tile,” said the re­port.

This can only be good news for those who want to in­vest on the cheap.

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