Investor anger at fund managers passing on the cost of trading may be overdone given the actual level of the costs, a consultancy has said.
Fitz Partners analysed more than 800 UK-based funds in its ‘portfolio turnover and trading fees’ analysis and claims while there is a “significant” impact from trading fees, the level of this is often overstated.
Hugues Gillibert, chief executive at Fitz Partners, said: “On average, they are still well under the level of management fee and nothing like doubling the total fund expenses or ongoing charges, as has sometimes been predicted.
“Hopefully our work will bring some substance to the current discussions currently taking place in the UK and in Europe as to what the impact of Mifid II might be in terms of fund fee disclosures and in particular whether fund transaction fees should be made available to investors alongside other fees.”
The data comes at a pertinent time given a scathing attack on the industry by the Financial Services Consumer Panel, which argued for a “radical” single investment charge figure given what it deemed as “opacity” surrounding investment charges.
Mr Gillibert unlike fund operating fees, trading costs were “backward looking” and could reflect “past market conditions”. This means they cannot be relied upon to predict the next year’s trading costs, Mr Gillibert added.
“There is a fundamental difference between trading fees and ongoing charges and although we believe it is right to offer visibility on both fees, they should not really be stacked up on one another,” he said.
“Trading fees should be measured relative to the fund’s return and not in isolation. Has the investment adviser been adding value through his or her trading and can this be replicated in the future? This is what really matters.”
Mr Gillibert added an average trading fee level of 13 or 14 basis points did “not seem over the top” when considering the potential upside in equities.
He acknowledged though, “as low as it can, it must produce a level of return exceeding investors’ expectations”.
|Fitz Partners trading costs analysis|
|IMA sectors||Weighted average portfolio turnover rate (%)||Straight average PTO (%)||Weighted average trading fee (%)||Straight average trading fee (%)|
|Asia Pacific ex Japan||42.25||57.41||0.21||0.31|
|Europe ex UK||63.47||78.89||0.18||0.22|
|Global Emerging Markets||34.84||55.47||0.2||0.34|
|Mixed Investment 20-60% Shares||48.14||48.63||0.09||0.11|
|UK All Companies||28.7||41.11||0.17||0.3|
|Uk Equity Income||21.6||36.59||0.16||0.28|
|UK Smaller Companies||33.12||37.6||0.23||0.32|