Personal finance: Same funds, different fees

Although dauntingly different at first sight, many offshore funds run by UK fund managers have identical investment objectives to their onshore siblings. But, warns Abigail Montrose, investors should beware of different charges levied on each product.
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The Independent Online
Offshore investment funds are often overlooked by ordinary investors. But for those who want to defer paying tax on their investment, or who want to widen their choice of investment to include funds not authorised in the UK, such as hedging funds, the offshore route can be attractive.

Most funds are set up as companies, so they issue shares rather than units. However, they are open ended, which means that there is no limit on the number of shares that can be issued - similar to unit trusts. Most have a single price which you buy and sell at.

Many offshore funds are run by large investment houses which are UK household names, such as Barclays, HSBC, Commercial Union, Schroder and Perpetual. Most of them have a subsidiary in one of the main offshore centres of Jersey, Guernsey, Isle of Man, Luxembourg, Dublin and Bermuda.

Often the offshore funds offered by a company are similar to the unit trust funds they run in the UK. In fact, it is not unusual for the same fund manager to run an onshore and an offshore fund version using the same strategy.

Funds can be single funds or umbrella funds. Umbrella funds are the more diverse of the two as they house a range of sub-funds, from four to 25 funds, and it is usually cheap and easy to switch money between the sub- funds. Companies offering umbrella funds include Guinness Flight Hambro, Templeton, Fidelity, Flemings and Scottish Equitable.

Although annual management charges on offshore funds look similar to their equivalent onshore unit trusts, investors need to check closely for extra charges. Last year, the offshore fund research specialist Fitzrovia International compared the costs of offshore funds with onshore unit trusts and discovered that in some cases offshore investment funds were charging up to three times their quoted management fees in hidden expenses.

Among companies doing this was Sun Life European Growth Portfolio fund. It quoted an annual management fee of 1.5 per cent, but once all the extra annual charges were added together, the real charge was almost 5 per cent.

Sun Life has since taken steps to improve its charging structure, but investors should ask offshore fund managers for the total annual percentage charges on an offshore fund before committing themselves.

Paul Moulton, managing director of Fitzrovia International, says: "Charges on offshore funds are marginally more expensive on average than their almost identical onshore funds run by the same companies. But this is not always the case."

Where an investment house offers an offshore version of one of its onshore funds, the investment performance of the two funds tends to be similar. Differences are likely to occur only where the charges are different, or if one of the funds suddenly has a large inflow or outflow of investment money.

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