Mr Fund Manager: "Superior performance costs money and people have to realise that the cheapest car won't be the fastest. A good fund like X [here he inserts the name of the firm's best performer] will more than make up for the charges. We don't apologise for being expensive."
Obsessed Journalist: "Yes, but the extra charges mean you start from way behind. You may have a fast car but you aren't starting the race in pole position, so you have to drive extra hard to catch up."
In case you are marvelling at my pithy brilliance, I am much less eloquent than this in real time and probably mumble into my salad.
But eloquent or not, my point remains the same every time. Banging on about charges is a "media obsession" because the fund managers refuse to take any notice. Instead, they defend the enormous amounts of money they take off your investments with an arrogance bred of many years of fobbing off the public (who apparently know nothing) with their "expertise" at picking the right shares and running the funds.
The flaw in this brilliant argument is that many of them aren't very expert (even if they do wear nice suits). And the expensively promoted PEP or ISA fund you bought from a newspaper ad, salesman or financial adviser is unlikely to beat a cheap All-Share index-tracker fund over the long term. Out of 81 unit trusts in existence over the past 10 years, only three outperformed the index - and that's before charges are taken into account.
The latest edition of BEST Investment's Spot the Dog guide is out now (see the article below to find out if you've been sold a pup). This booklet highlights the staggering differences between unit trusts. The best, Exeter Capital Growth, has turned pounds 100 into pounds 228 in three years while the worst, Equitable Special Situations, was worth pounds 121 after three years. The guide doesn't mention smaller company funds, but the highlight there is Abbey National's Smaller Companies fund, which turned pounds 100 into just pounds 97.
As proof of how unwilling the fund managers are to lower their charges, take a look at how few of them have chosen to offer CATmarked funds. This logo shows would-be investors that the manager won't take more than 1 per cent of your money in total charges each year. A survey earlier this month by analysts at Fitzrovia could only find a total of 29 CATmarked funds in five key investment sectors (basically the UK, continental Europe and bond funds). There were 532 funds without CATmarks. The survey also shows that the traditional fund managers operate an average "spread" - the difference between what you pay in and what gets invested for you - of 5.4 per cent.
In the three months to the end of June, the average non-CATmarked fund had actually lost investors' money - about 2.5 per cent. All of this is down to charges. The CATmarked funds were 1.37 per cent ahead. Next time I'll shout that over my salad.
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