1.14 TER of 2.5% per year.
The two largest unit trust sectors in South Africa are the Multi Asset High Equity (MAHE) and General Equity (GE) sectors. The most recent values (30 September 2014) showed a combined worth of R620bn in these two industries alone.
The average TER of the 20 most e x pensive MAHE f u nds was a whopping 3.53%, compared to 1.14% for the least expensive MAHE funds (see table). The GE sector’s average TER was cheaper, but the 20 most expensive GE funds’ TER averaged 2.44%, still relatively expensive when compared to the cheapest funds.
Comparing the cheapest and most expensive funds was quite sobering. The 20 most e x pensive MAHE funds’ average 12-month returns (up to 10 November 2014) totalled 9.35%, compared to t he sector average of 9.46%. The 20 cheapest funds’ average 12-month returns, however, totalled 10%. GE f unds surprised me even more. While the 20 most expensive GE funds underperformed against the sector average of 11.5% at a 12-month average of 10.76%, the 20 cheapest funds delivered 12.72% in returns.
That means that in both cases, costs would surely have been one of the big reasons why these funds underperformed against the sector average.
This does not mean that you should rush into buying the low TER funds. Doing your homework properly r e ma i n s k e y . We can definitely say, however, that expensive does not always mean better.