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Research warns of costs on high-turnover funds

Investors in funds with high trading levels face losing up to 9 per cent of the performance through expensive dealing costs, according to research by Fitzrovia International.

The fund research company has found that portfolio turnover – the degree of buying and selling that a fund has undertaken in a year – can be as high as 500 per cent in some funds, generating dealing costs in excess of likely performance.

According to the FSA, trading costs, which cover commission, bid/offer spread, price and stamp duty, often amount to 1.8 per cent for 100 per cent portfolio turnover.

On this basis, one Framlington fund identified by Fitzrovia as having 495 per cent turnover could incur costs of up to 8.9 per cent, hitting investors&#39 potential returns.

Another fund from Legal & General has 399 per cent turnover, meaning its performance could be dented by costs of up to 7.2 per cent, while a Halifax fund with turnover of 359 per cent could incur costs of up to 6.5 per cent.

Fitzrovia also highlights the differences in the average turnover of companies, finding that Artemis has a mean average turnover of 176 per cent while Britannic Asset Management has an average of 156 per cent. This means that investors in their funds can expect performance to be affected by up to 3.2 and 2.8 per cent respectively.

Fitzrovia communications associate director Ed Moisson says: “While the research does not suggest that funds with higher portfolio turnover are bad, it does provide data on an area that is impacting on performance in difficult investment conditions.”

Framlington marketing manager Neville Vyas says: “We have simply been restructuring the portfolios following the acquisition of George Luckraft and Nigel Thomas.”

Michael Philips proprietor Michael Both says: “I have no problem with high turnover, provided that it leads to outperformance but very few funds achieve that.”


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