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Table turmoil as our research reveals charge/return reality

The FSA&#39s comparative tables were dealt yet another blow this week as new

research conducted for Money Marketing revealed that lower-charging funds

have consistently produced lower returns.

Figures compiled by investment selection service Shouts show that, on

average, funds with annual charges of 1 per cent or less produce returns up

to 30 per cent lower than funds with annual charges of 1.5 per cent.

The figures have renewed industry concerns that the FSA&#39s comparative

tables will mislead investors if it goes ahead with plans to compare funds

only on their charges.

They may also have implications for the performance of funds within

stakeholder pensions, which have annual charges capped at 1 per cent and

are falling ever lower as competition intensifies.

Shouts, which used data from Lipper, shows that over the five years to the

end of 2000, the 63 active funds with an annual charge of 1.5 per cent in

the UK All Companies sector returned an average of £1,911 on a lump

sum of £1,000. However, the 41 funds with an annual charge of 1.25 per

cent returned an average £1,898 while those with an annual charge of 1

per cent returned £1,847.

The results across the North American sector are even more pronounced,

with the most expensive funds averaging a return of £2,396 and those

with 1 per cent charges returning only £2,065 over the same period.

Shouts managing director Roger Bevan says: “It could be highly misleading

for the FSA&#39s tables to sway investors towards choosing funds on the

grounds of lowest annual charges.”

Michael Philips partner Michael Both says: “If you are a good fund

manager, you are going to charge more. As with all things, you get what you

pay for. These tables are going to be a nightmare.”

FSA spokesman Andy Fleming says: “We consulted extensively on the tables

in preparing them and took account of the industry&#39s views in putting them

together. We make it clear throughout the tables that they are not a

substitute for advice. They are there to help consumers focus on the

important issues.”

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