Sunday Times "funds cream half investor profits"

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KOW

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The above article focuses on Friends first Irish Commercial property fund stating the fund typically wipes 3.35 percentage points a year from performance off the return of 7.46% since 1984.
It also states that Zurich lifes Dynamic fund would trigger charges of 4300 euro on a 10k investment over seven years an annual drag of 3.35%.

Add tax on profits and it is just mind boggling.

The argument for direct investment by learned posters on this site can not be over stated.
Only in Ireland.
 
My occupational pension fund is in that Zurich fund and the charges are listed as 0.6% on my Zurich portal.

So either that is wrong or the above 3.35% is ?
 
DCD said:
The above article focuses on Friends first Irish Commercial property fund stating the fund typically wipes 3.35 percentage points a year from performance off the return of 7.46% since 1984.
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That article is misleading in a number of respects.

The 7.46% figure is the (self-reported) annualised return on the retail institutional fund class (gross-roll up) of their Irish commercial property fund from March 1984 to October 2017.

The 3.37% figure represents the projected impact of investment costs on the projected return (moderate scenario) on the same fund under a particular investment plan.

In other words, the article confuses:
  • Different products;
  • Gross and net figures; and
  • Projections and historic returns.
It's not comparing apples to apples – it's comparing oranges to bananas!

Links to the relevant documents:-
https://www.friendsfirst.ie/wp-content/uploads/Friends-First-Irish-Property-Quarterly-Customer-Report.pdf
https://www.friendsfirst.ie/wp-content/uploads/active/Active/FUND_ZSSS360_606.pdf
https://www.friendsfirst.ie/wp-content/uploads/PRIIPs-KIDS-and-Friends-First-QA.pdf
 
Sarenco said:
That article is misleading in a number of respects.

The 7.46% figure is the (self-reported) annualised return on the retail institutional fund class (gross-roll up) of their Irish commercial property fund from March 1984 to October 2017.

The 3.37% figure represents the projected impact of investment costs on the projected return (moderate scenario) on the same fund under a particular investment plan.

In other words, the article confuses:
  • Different products;
  • Gross and net figures; and
  • Projections and historic returns.
It's not comparing apples to apples – it's comparing oranges to bananas!

Links to the relevant documents:-
https://www.friendsfirst.ie/wp-content/uploads/Friends-First-Irish-Property-Quarterly-Customer-Report.pdf
https://www.friendsfirst.ie/wp-content/uploads/active/Active/FUND_ZSSS360_606.pdf
https://www.friendsfirst.ie/wp-content/uploads/PRIIPs-KIDS-and-Friends-First-QA.pdf
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From the figures can you calculate the historic expense ratio?
 
RobFer said:
From the figures can you calculate the historic expense ratio?
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No, I'm afraid not.

As an aside, I think it's extraordinary that the Central Bank does not require life companies to disclose this information. In my opinion, the lack of transparency when it comes to the cost of unit-linked life products is a huge failure of our regulatory system.
 
cremeegg said:
It hardly matters wether it is apples or oranges if you must pay for both.
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You're right and a bit left - other fish to fry right now - hopefully Sarenco will have time to explain; otherwise, I'll try address properly later.
 
cremeegg said:
I don't consider my self either stupid or uneducated but I didn't understand a word of that thread.
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I'll have a shot at explaining the different terms but I'm afraid it does get fairly complicated.

The stated annual management charge (AMC) for a fund is simply the fee paid to the fund manager, out of the fund assets, on an annual basis (normally expressed as a percentage of a fund's net asset value per unit). However, a fund will bear all sorts of other operating and trading costs that are not reflected in the AMC.

The Total Expense Ratio (TER) of a fund is equal to the ratio of the fund's total operating costs to the average net asset value of the fund during the preceding financial year. So, a fund's TER incorporates its AMC but also includes other operating costs (legal, audit, custody, etc.).

However, notwithstanding the name, a fund's TER does not reflect the full ownership costs of holding a fund. In particular, it does not capture portfolio trading costs (currency conversion costs, brokerage costs, stamp duty, etc.).

To all intents and purposes, a fund's Ongoing Charges Figure (OCF) is essentially the new name for its TER (there are some technical differences but these are unimportant for these purposes). If you look at the Key Investor Information Document (KIID) for any UCITS fund, it will give you the fund's OCF.

So far so good?:)

The new EU regulations discussed on the earlier thread require a Key Information Document (KID) to be made available to investors in packaged retail and insurance-based investment products (PRIIPs). Importantly, certain pension products are exempted from the requirement (as are UCITS funds until 2019).

The PRIIPs KID is similar in many respect to a UCITS KIID but there are important differences. In particular, the impact of investment costs on an investor's projected return is expressed as a projected reduction in yield (RIY) figure (as opposed to the OCF discussed above, which is based on historic operating costs/NAV and excludes trading costs).

The methodology for calculating the projected RIY is relatively complex but, importantly, the figure aims to give potential investors a true and fair view of the projected impact on the projected returns of a fund of anticipated (a) operating costs; (b) distribution costs; and (c) portfolio trading costs.

Hopefully that helps.
 
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Hi Sarenco,

At present I have a reasonable sum invested in an Irish Life global equity fund. I’m paying an AMC of 0.45%. I’ve always thought that the TER would be circa 0.6% on the basis that Irish Life would have serious institutional purchasing power in terms of trading costs. Am I wrong/naive? There is no broker or intermediary involved.

Many thanks.

Gordon
 
That's looks like a reasonable estimate Gordon.

It's also probably reasonable to add another ~0.15% to the TER to capture portfolio trading costs (assuming the fund is actively managed).

Ballpark estimates, obviously.
 
Thanks Sarenco for that. I must bookmark the post.

Just a few points that throws up.

Are marketing costs included in the AMC.

Is the RIY affected by the projected return. If there is a fixed element in the costs I would expect the RIY to be higher at a low projected return. Does that make sense.
 
cremeegg said:
Are marketing costs included in the AMC
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No, distribution costs (intermediary commissions, platform charges, etc.) wouldn't fall within the scope of the AMC.
cremeegg said:
Is the RIY affected by the projected return
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Yes, the RIY is calculated on the basis of the moderate scenario, over the recommended holding period, indicated in the KID. Funds with different returns over the same holding period will exhibit slightly different figures for similar costs.
 
cremeegg said:
I don't consider my self either stupid or uneducated but I didn't understand a word of that thread.
Click to expand...

Perfectly understandable, the more I look into this, the bigger a mess the whole thing is.

Standard Life don't include the 1% government tax as an entry cost but the other companies do.
Some insurance companies assume 100% allocation with a 3% advisor set up fee and 0.5%. Other companies are investment contract specific while another assumes an allocation of 95% (they are redoing their assumptions as their costs are way higher!! o_O).
Another life company is not showing costs for the use of external fund managers.

The basis for the KID document was to allow people to compare the costs of different funds with different life companies. The fact that the companies do not put the assumptions used on the document means you are looking at headline costs that may not actually apply at all.

I have spoken to some people in life companies and they have all expressed frustration at this document and how far removed from reality these figures are.

The regulations laid down to MiFiD firms is a lot clearer and easy to understand than this mess.


Steven
www.bluewaterfp.ie
 
I invested 200k a sizeable amount to me through a crowd called Liberty Asset management back in 2007. Today it is worth 204k.
It is with New Ireland currently in their evergreen fund. The current AMC charge is stated at 1%.
I will be closing off fund over the coming weeks and investing directly due to the dismal performance and charges i dont understand or have control over.
Cold anyone offer a rough idea what the actual charges per annum are on such a fund.
Also a small number of units are added to the fund each month. I phoned and spoke to an agent in New ireland and all they could say was that this was the structure set up with the broker at the start of the policy--no detail.
Could anyone explain in simple terms?
Cheers.
 
DCD said:
I invested 200k a sizeable amount to me through a crowd called Liberty Asset management back in 2007. Today it is worth 204k.
It is with New Ireland currently in their evergreen fund. The current AMC charge is stated at 1%.
I will be closing off fund over the coming weeks and investing directly due to the dismal performance and charges i dont understand or have control over.
Cold anyone offer a rough idea what the actual charges per annum are on such a fund.
Also a small number of units are added to the fund each month. I phoned and spoke to an agent in New ireland and all they could say was that this was the structure set up with the broker at the start of the policy--no detail.
Could anyone explain in simple terms?
Cheers.
Click to expand...

It is impossible to know. The Reduction in Yield (RIY) that is now required on investments is a forward looking assumption of charges. They may or may not prove to be accurate.

The Ongoing Charges Figures (OCF) is backward looking and details the cost of the fund in the previous last year. Life companies do not disclose the OCF.

If you are getting units added to your fund each month, I would get in touch with Liberty and ask them what charging structure you are under as it sounds like an expensive one. You also bought into a fund with heavy property weighting at near the height of the market so you would have taken a massive hit but it should have recovered somewhat since then. The deemed disposal would also have been taken from your fund. Do you know how much that was?


Steven
www.bluewaterfp.ie
 
Sarenco said:
Links to the relevant documents:-
https://www.friendsfirst.ie/wp-content/uploads/Friends-First-Irish-Property-Quarterly-Customer-Report.pdf
https://www.friendsfirst.ie/wp-content/uploads/active/Active/FUND_ZSSS360_606.pdf
https://www.friendsfirst.ie/wp-content/uploads/PRIIPs-KIDS-and-Friends-First-QA.pdf
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Sarenco that is a very helpful introduction to PRIIPS. Now what I am going to say is no criticism of FF but it seems to me that this PRIIPS stuff has really lost the plot, unless I am reading it wrong.

It tells me that the adverse scenario over the next 7 years is 9.43% p.a. My read of that is that it is estimated that in 90% of outcomes you can expect to earn at least 9.43% p.a. after all charges. If I believed that I would mortgage the chateau to get a piece of it.

But FF are merely following the rules. The return over the last 5 years is 12.29% p.a. and with an SRI of 2 its volatility is less than 5% p.a. So yes using the prescribed statistical model I can see why you would get that it is 9/1 against earning less than 9.43% p.a. after all charges over the next 7 years.

But the return over the last 10 years is -5.4% p.a. and the return over the last 15 years is 1.73% p.a. and 1984 7.86% p.a.

Finally describing a unit linked property fund as low risk seems crazy to me.

PRIIPS is the sort of EU nonsense that makes you think Brexiteers aren't all wrong.
 
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Hi Duke

Yes, it was widely predicted by asset managers that the PRIIPs methodology, particularly in relation to performance and costs, would only serve to confuse and mislead investors.

Having said that, it does at least have the merit of highlighting (however imperfectly) the impact of costs on return.

I don't have much sympathy for life companies that have offered investment products with opaque charging structures for years. If the RIY figure is misleading, well, give us the funds' OCF and we can make up our own minds!
 
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