|Yes! And it is the only worthwhile
data the small investor has to help him pick a fund.
Costs matter because.....
The mathematics of compounding
makes small percentages important.
In a recent study the annual costs of unit and investment
trusts in the UK are estimated to range between 0.6% per annum and
3.85% per annum.
Over 20 years, a fee of 0.6% per annum removes 10%
of a fund's value (20% over 40 years). Over 20 years, a fee of 3.85%
per annum removes over 50% of a fund's value (75% after 40 years).
So fees have got to be justified by enhanced
Nobody has managed to find any evidence that
the historical performance of a fund is any guide to future performance.
In fact the FSA has gone so far as to ban the use of historical
performance figures in advertising (Pick
On Performance?). And....
The fund management industry has made no attempt to
introduce unbiased measurement methods to allow investors to make
informed choices on the basis of the data available. It has preferred
instead to rely on traditional advertising techniques. And....
managers are a myth
Even if there are such things as "better
managed funds", the average investor has no chance of ever
identifying what they are. So he might as well pick on the basis
of the one thing he does know, which is costs.
It's hard to discover what the costs of a fund
are. They comprise more than just the investment management fees
(which have to be declared). Find out more in Costs
The Financal Services Authority
(FSA) publishes aggregate costs figures in comparative
tables on its website, but it doesn't define exactly what's
included and what isn't and its effort at simplification has only
lead to confusion.
Certainly one item never included in these
figures is the cost of dealing within the fund. This has been estimated
to be 1.7% each year for the average fund, on top of everything
else. Read more in Portfolio
One or two fund management groups actually provide quite good cost
disclosure. If you find them, put them top of your "maybe"
list. Information will remain patchy until
funds are forced, either by law or investor pressure, to provide