‘cheap’ fund?

Finweek English Edition - - MONEY - TOP 20 CHEAP­EST TER Port­fo­lio Man­ager at PSG Kon­sult

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.


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