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AIC Ian Sayers

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Nearly a third of investors have TERs under 1%

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Annual research from the Association of Investment Companies (AIC) has revealed that almost a third (31%) of investment companies have Total Expense Ratios (TERs) of less than 1% and nearly two thirds (62%) have a TER under 1.5%.

 

The study encompassed 242 conventional investment companies (excluding VCTs) using data from Lipper, a Thomson Reuters company. These figures exclude performance fees, an additional charge which is only paid if a company outperforms its benchmark by a pre-agreed margin.
 
The sector with the most companies with TERs under 1% was the Global Growth & Income sector, with 67% of companies costing less than 1% per year.  Following this was the UK Growth & Income sector with 58% of companies with a TER under 1%, and the Global Growth sector with 57% of companies with a TER under 1%.
 
The lowest cost AIC member was Independent Investment Trust from the Global Growth sector, with a TER of just 0.36%. This was followed by Edinburgh US Tracker Trust (0.40%), Bankers (0.42%), City of London Investment Trust and Law Debenture Corporation (both 0.49%), Ashmore Global Opportunities (0.54%), Mercantile Investment Trust (0.55%) and Henderson Smaller Companies Investment Trust, Scottish Mortgage Investment Trust and Temple Bar Investment Trust, which all have a TER of 0.56%.
 
The average investment company TER is currently 1.70% (using data to November 2010), slightly down from 1.76% in January 2010. These average TER figures reflect the increase in the number of specialist investment companies in recent years with higher running costs, such as those from the Property and Sector Specialist sectors. This has led to an increase in the average cost of investment companies in comparison to 1.41% in October 2008, 1.44% in June 2007, 1.55% in 2006 and 1.6% in 2005.
 
Ian Sayers, Director General of the Association of Investment Companies (AIC) says: “Although charges are only one of many factors to consider when choosing an investment company they can have a significant impact on long-term performance. Boards of investment companies play an important role in ensuring that charges are reasonable and that performance fees are sensibly set, bringing an extra layer of scrutiny and oversight.”

When performance fees are taken into consideration the average TER with performance fees included is 1.82% in comparison to 1.83% in January 2010 and 1.56% in October 2008.  In March 2011 54% of investment companies had a performance fee in place (130 by number) and 45 companies had actually paid a performance fee. In comparison in January 2010 54% of investment companies had a performance fee in place (135 by number) and 44 companies had actually paid a performance fee.

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