The fund management industry used to have to disclose the costs of its funds by use of a measure known as TER or total expense ratio. Although TER sounded like a comprehensive and transparent full disclosure of costs to the investor it never was! Crucially the trading costs were omitted. This included the stockbroker fees and commissions, stamp duty and the bid offer spread of the share price itself.
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TER was replaced by OCF or Ongoing Charges Figure in 2011. It is difficult to understand why a different title was chosen other than that the OCF does not imply that all costs are covered by it! Maybe a face-saving exercise by the FCA that has done nothing to remove the omission of PTR from the TER and now Ongoing Charges Figure.
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What is even more baffling is why the Investment Managers Association, the IMA, decided to remove the disclosure of portfolio turnover rate from the Key Investor Information Document or KIID in 2011. This appears to be a retrograde step.
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So what is Portfolio Turnover Rate? PTR calculates the amount by which a portfolio is turned over or changed during a year. Some call it churning with good reason!
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SCM Direct has calculated that the average PTR in the UK is 38 basis points or 0.38% p.a. This means that the average OCF of 85 basis points or 0.85% is understated by 45%! That is a significant under reporting of the OCF. This is a something that needs to be addressed by the FCA and the time is now.
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We at Minerva Money Management are so in favour of disclosing Portfolio Turnover Rate that we will be openly disclosing ours on the home page of our website as soon as our first fund The Intelligent Wealth Fund has finished its first year of trading at the end of April 2019. We will then invite all other UK fund managers to openly disclose their PTRs too.
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The reason we will be openly disclosing our PTR is because it will be well below the industry norm because of our largely buy and hold strategy. We figure that once we have invested in a great stock why would we want to sell it? You see if you buy the right shares in the first place then why would you possibly want to sell them? You cannot help but wonder if active fund managers’ generally higher PTR is a cynical move to generate higher commissions for the fund managers at the expense of investors. The statistics do appear to indicate as much.
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Research shows that active fund managers have consistently higher PTRs than passive fund managers. Moreover the majority of passive fund managers outperform active fund managers. The main reason for this outperformance is lower Portfolio Turnover Rate hence lower charges!
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We believe that hidden charges as represented by the Portfolio Turnover Rate have no part to play in modern fund management. All charges should be transparent so that investors can make informed decisions when investing their hard-earned money. Hidden charges are a slur on the fund management industry which gives it a bad name because it short-changes investors. It’s a scandal and the sooner this omission is removed by the FCA the better. In the meantime fund managers can save face by openly disclosing their PTR prominently on their websites and on their literature. After all, transparency like honesty is always the best policy!
Â
If you would like to invest in a fund that is open about its low Portfolio Turnover Rate why not invest in the CCM Intelligent Wealth Fund? You know it makes sense.
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TER was replaced by OCF or Ongoing Charges Figure in 2011. It is difficult to understand why a different title was chosen other than that the OCF does not imply that all costs are covered by it! Maybe a face-saving exercise by the FCA that has done nothing to remove the omission of PTR from the TER and now Ongoing Charges Figure.
Â
What is even more baffling is why the Investment Managers Association, the IMA, decided to remove the disclosure of portfolio turnover rate from the Key Investor Information Document or KIID in 2011. This appears to be a retrograde step.
Â
So what is Portfolio Turnover Rate? PTR calculates the amount by which a portfolio is turned over or changed during a year. Some call it churning with good reason!
Â
SCM Direct has calculated that the average PTR in the UK is 38 basis points or 0.38% p.a. This means that the average OCF of 85 basis points or 0.85% is understated by 45%! That is a significant under reporting of the OCF. This is a something that needs to be addressed by the FCA and the time is now.
Â
We at Minerva Money Management are so in favour of disclosing Portfolio Turnover Rate that we will be openly disclosing ours on the home page of our website as soon as our first fund The Intelligent Wealth Fund has finished its first year of trading at the end of April 2019. We will then invite all other UK fund managers to openly disclose their PTRs too.
Â
The reason we will be openly disclosing our PTR is because it will be well below the industry norm because of our largely buy and hold strategy. We figure that once we have invested in a great stock why would we want to sell it? You see if you buy the right shares in the first place then why would you possibly want to sell them? You cannot help but wonder if active fund managers’ generally higher PTR is a cynical move to generate higher commissions for the fund managers at the expense of investors. The statistics do appear to indicate as much.
Â
Research shows that active fund managers have consistently higher PTRs than passive fund managers. Moreover the majority of passive fund managers outperform active fund managers. The main reason for this outperformance is lower Portfolio Turnover Rate hence lower charges!
Â
We believe that hidden charges as represented by the Portfolio Turnover Rate have no part to play in modern fund management. All charges should be transparent so that investors can make informed decisions when investing their hard-earned money. Hidden charges are a slur on the fund management industry which gives it a bad name because it short-changes investors. It’s a scandal and the sooner this omission is removed by the FCA the better. In the meantime fund managers can save face by openly disclosing their PTR prominently on their websites and on their literature. After all, transparency like honesty is always the best policy!
Â
If you would like to invest in a fund that is open about its low Portfolio Turnover Rate why not invest in the CCM Intelligent Wealth Fund? You know it makes sense.
