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Investors &#39wasting £150m a year&#39 on management fees

Legal & General claims that investors are wasting up to £150m a year in management fees paid to active funds which come closer to tracking rather than beating their indices in terms of performance.

Research from L&G says retail investors have around £60bn in UK actively managed funds with annual charges of 1 per cent or more. Many funds, in the current economic climate, are not producing better returns than the index they aim to beat.

If half of this money were switched to funds with lower charges, savings would be £150m a year, says the investment arm of the life office.

It says annual management fees of 1.5 per cent would represent only 10 per cent of returns if total returns were averaging 15 per cent but the same level of fees represent 25 per cent if the total return is only averaging 6 per cent, as is often the case.

To counter the charges, L&G is urging investors to adopt a core-and-satellite approach when developing their portfolio. This means keeping part of the funds in a low-cost tracker index and then the balance in higher risk satellite funds looking to outperform the market.

By adopting this investment strategy, L&G says fees are kept to a minimum.

L&G retail investments director Simon Pistell says: “In a low-inflation and low-nominal-return environment, keeping management fees as low as possible is a sensible policy for all investors. Investors need to ensure they are not paying high levels especially for those that are &#39closet index&#39 trackers. Adopting a core-and-satellite approach is an ideal way of guarding against these traps.”

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