The Investment Association has hit back at critics of fund management hidden costs as it finds “zero evidence” that funds’ returns are affected by hidden fees.
In a report, published today with research firm Fitz Partners, the investment trade body has analysed 1,350 active and passive funds and estimated average transaction fees across the IA fund sectors.
It finds that between 2012 and 2015 overall equity fund returns are 0.71 per cent above index returns a year, which is higher than the -1.59 per cent underperformance expected based on charges and transaction costs.
The funds’ average portfolio turnover rate across all equity funds is 40 per cent on an asset-weighted basis and 60 per cent on a simple average, the IA says.
The IA also finds that estimate average equity fund costs across its fund sectors is 1.59 per cent, as a result of an average 1.42 per cent ongoing charges figure and average transaction costs of 0.17 per cent.
Investment Association director of public policy Jonathan Lipkin says: “The industry should be judged on its actual delivery, not on perceptions of delivery. Our research with Fitz Partners is a detailed empirical analysis of equity fund performance in the context of quantified charges and costs.
“If you look at the actual performance delivered to fund investors, this is the proof point and we do not see evidence of high transaction costs, either explicit or implicit.”
Fitz Partners founder Hugues Gillibert says: “This research makes no judgement as to what could be considered the right level of fund fees or what could be qualified as cheap or expensive, but 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.”
The IA recently said it will publish a disclosure code later this year meant to standardise fee disclosure including implicit cost estimates across all investment products.