12 October 2020

Never forget to check the fees on Active Equity Funds

Stable returns, but high costs. This headline caught our attention in today's edition of a German newspaper featuring a large Fidelity Fund focusing on German Equties. So when we checked Morningstar it said that the ongoing charge was a whopping 1.92% PER ANNUM

When you consider that this means that total fees accruing to Fidelity on this fund is around €20 Million (given the total fund size of just over 1000 Million) one is left with the question: is this amount really justified when at most 2 fund managers and a few analysts are needed to run this fund? Pay them a generous €300000 each and allow some ancillary expenses and one would have to assume that fees of 3-4 Million would be more than enough.

Delicate detail: as this fee does not explicitly state it is the TER - Total Expense Ratio - it could well be that the unlucky investor is hit with more fees.

And on top of that many - if not most investors - are charged on average an additional 1% by the Asset Manager or Private Banker that allocates their savings to that fund.

So does the performance justify investment in such an 'active' fund? Yes and No, not if you compare performance sinc 1990, yes if you just look at the past 10 years.

Does the performance justify high fees? As always, it depends. So speak to an independent analyst or consultant who has no financial interest in your decision and be aware that high charges are a serious drag on performance.