By Ingrid-Claudette Blanc The total expense ratios (TER) on all UK unit trust and Oeics has f...
By Ingrid-Claudette Blanc
The total expense ratios (TER) on all UK unit trust and Oeics has fallen by 6.8% over 12 months, according to research by Investment Week's parent company, Incisive Media.
Its annual report into TERs found that for 2000 the average figure was 1.37%, down from 1.47% in 1999. The research, based on analysis of the semi and annual accounts from more than 100 fund groups, covered 1,200 portfolios.
TERs measure the fees and expenses over and above the stated management charges allocated to a fund over an annual period. As such they have a direct impact on distributable income and performance of collective investment schemes.
On average, Oeics have continued to post lower TERs compared to unit trusts but the gap between the two is narrowing. In 1999, the average Oeic TER was 1.45% but in 2000 this dropped to 1.34%, while for unit trusts in 1999 the average fund had a TER of 1.48% and in 2000 this dropped to 1.38%.
In addition, the group with the largest number of funds with low TERs is a unit trust company.
For the second consecutive year, the Flemings unit trust range, which is now being rebranded as JP Morgan Fleming, has displayed the lowest TERs.
Consistently low TERs not only suggests that a group has a policy of keeping management charges low but that the overall expenses are well managed over time.
Incisive Media, which has been researching data on TERs for five years, has gathered and analysed data from members of Autif and ranked individual funds into the first, second, third and fourth quartiles based solely on the level of their total charges.
According to the research, Fleming Unit Trust Management has 15 of its funds in the first quartile, with eight of these having TERs below 0.55%. Equitable Unit Trust Managers comes in second place with all 10 of its funds in the first quartile. Followed closely behind is Phillips & Drew Unit Trust Managers with all nine of its funds in the first quartile.
Although Fleming displays the lowest TER across the board, within individual fund types, bonds, equity, balanced or cash, none of its portfolios are ranked in the top three positions.
Equitable has managed to obtain third place in the balanced fund type for its International Growth fund displaying a TER of 0.53%. Save & Prosper, also part of Flemings and with a total of 17 funds, had the lowest TER in the balanced category and also posted the lowest TER of all the funds researched in this study, with its Masterfund displaying a TER of 0.11%
Legal & General has done exceptionally well this year, with two of its funds displaying low TERs in the bond sector, the L&G Gilt Trust at 0.21% and the L&G All Stocks Gilt Index Trust at 0.22% respectively. Its Cash Trust Liquidity fund displays a TER of 0.51%.
When looking at the table of management groups with the greatest number of funds in the first quartile, Legal & General has 52% of its fund range here, with only 4% in the bottom quartile.
Conversion from unit trusts to Oeics has proved successful for many management groups, with converted funds displaying on average lower TERs under the new structure.
From the research, it is clear that Royal & SunAlliance has proved to have the lowest costs among Oeic providers.
The group displayed the highest number of funds, 71% of its range, in the first quartile, with only 8% in the fourth quartile. Standard Life appears second with 59% of its funds in the first quartile, with Baring Fund Managers coming third with 56%.
Royal & SunAlliance has 10 funds displaying TERs of less than 0.5% and a major reason for this is these have three share classes separating institutional and retail investors. In addition, the Oeic has some very low annual management fees ranging from 0.1% to 0.5%.
Other notable funds with TERs under 0.5% include the Five Arrows UK Smaller Companies fund, C class, which has a TER of 0.44%, Aberdeen Gilt fund at 0.46% and Standard Life Investments Global Advantage fund at 0.5%.
For the purpose of this study, fund management groups with five funds or less have not been included as they have so few portfolios that they tend to be either at the top or the bottom of the tables.
The study highlights a number of factors which are ensuring strong price competition in the onshore funds market.
Among these are growing competition from new market entrants, cost savings due to electronic streamlining of services, government initiatives such as Cat standards as well as changing approaches to fund charges in the European fund industry. Investors also appear to be putting pressure on groups through their increasingly sophisticated analysis of costs of fund management.
In the United States where TERs have been calculated and indexed for many years, the ratios are viewed as being far more relevant than stated fees by an individual fund group.
For further information on Incisive Media TER directories contact Ingrid-Claudette Blanc, director and survey editor, on 0207 432 6949 or email her on [email protected]
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