There is no evidence that ‘hidden’ equity fund fees are negatively affecting returns earned by investors, new research suggests.
The UK Investment Association analysed the accounts of hundreds of equity funds and found the asset-weighted average portfolio turnover rate across all equity funds is 40%, too low to support the allegations of overtrading levelled by critics.
The trade body found that equity fund returns are 0.71% above index returns per annum, higher than the -1.59% underperformance expected based on charges and transaction costs. The body cites this as evidence ruling out hidden fees. As a result, the organisation branded hidden fund fees the "Loch Ness Monster of investments".
The study also found average ongoing charges figure in at 1.42% and average transaction costs were 0.17%.
The IA also reiterated plans to launch a public consultation later this year on the delivery of a new Disclosure Code to achieve fully standardised reporting both of fees and charges and implicit costs, in order to "deliver better indicators of costs across all investments".
Hugues Gillibert, founder of Fitz Partners, whose data archives were used by the IA for its report, said the study made no judgement as to what the ‘correct’ level of fund fees was, and what could be qualified as cheap or expensive.
“By taking into account all costs borne by the funds and in turn by the investors and its potential impact on funds' returns, it measures the actual value added by performing asset managers and the unlikely presence of significant transaction costs,” he said.
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