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Skandia questions cost claims on ETFs

Skandia says claims about ETFs being the cheapest investment solution could be misleading.

Head of proposition marketing Peter Jordan says exchange traded funds are increasingly being touted as the cheapest option in building a portfolio but when comparing total expense ratios of Oeics and ETFs, there can be little difference.

Skandia compared the cost of building a portfolio using the cheapest managed funds available on its platform, the best-selling funds, and ETFs purchased via three wraps. It found a portfolio could be constructed using passive Oeics from the cheapest funds for 0.05 per cent more per year than ETFs on the cheapest wrap, for the same price on the second wrap and 0.25 per cent cheaper on the third wrap. Using the best-selling funds on Skandia’s platform was 0.36 per cent more expensive than ETFs on the cheapest wrap. Jordan says: “ETFs may well be a suitable investment choice for many clients but this is unlikely to be because they are cheaper than other investment mechanisms.”

Seven Investment Management director Justin Urquhart Stewart says: “Not all ETFs are going to be cheap but ETFs are there to try to keep active managers honest to make sure they do not charge too much.”

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