David Norman, Joint Founder and CEO of TCF Investment said:
“We all know that past performance is no guide to the future - but too few people realise the importance of fees and trading costs as predictors of returns.”
“The industry is getting away with rising charges and trading costs that appear out of control. Past performance is not a guide to the future – but our analysis shows that costs almost certainly are”
TCF Investment recently looked at the returns of the three IMA Managed sectors and found a strong link between TERs and returns – low cost funds consistently beat high cost funds in these sectors.
TCF has since continued this analysis looking at the Corporate Bond, Global Equity UK All Companies and UK Equity Income sectors (amongst the ten largest overall sectors by AUM):
All the funds in each sector were ranked by current Total Expense Ratio (TER). It then looked at the performance of the low cost quartile (cheapest 25%) and the highest cost quartile (most expensive 25%) relative to the average of all funds.
In every case the low cost quartile funds beat high cost quartile funds.
There is very strong trend for the lowest cost quartile to exceed the sector average return. And for the highest cost quartile to lag the sector average. TCF Investment says that investors and advisers need to look very carefully at both the TERs and Portfolio Turnover Rates of funds.
David Norman said:
"In the current low return environment costs take on an ever more important role in fund returns; as I have said before, high costs mean investors are effectively trying to walk up the down escalator – a sure fire way to get nowhere fast.”
