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Higher-charge funds produce better returns

Funds with higher annual management charges reap better returns in volatile investment markets than those with the lower AMCs, according to research by Standard & Poor&#39s.

In a study across a number of investment sectors over the past five years, S&P found that people who were willing to invest in funds with the highest AMCs were more likely to get better returns.

In the UK all companies sector, investors with £1,000 in a fund with an AMC of 0.49 per cent or less received an average return of £1,233 while investors paying 1.5 per cent or above received an average of £1,384.

In the Japanese sector, investors paying an AMC of 0.49 per cent or less received an average return of just £870 compared with £1,044 for those paying at least 1.5 per cent.

But although the story remained the same across many other sectors – including North America and Europe (excluding UK) – returns varied much less with AMCs in the bands between 0.49 per cent and 1.49 per cent and in some cases investors would have benefited from a lower AMC.

In the North American sector, investors paying an AMC between 1 per cent and 1.24 per cent saw an average return of £1,434 but those paying between 0.5 per cent and 0.74 per cent received £1,472.

However, in all cases, the most expensive bands of between 1.25 per cent and 1.5 per cent or above substantially outperformed funds with AMCs of 0.49 per cent or lower.

Skandia investment brand manager Phil Morse says: “I think the performance of the more expensive funds just goes to show why investors are generally happy to pay higher AMCs, especially in volatile markets which require a stockpicking approach.”

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