All data is delayed
See More

Index trackers trump pricey funds

Sep 10 2012 13:34
Nellie Brand Jonker
Cape Town – The high fees charged by funds are the biggest dilemma in the investment world.
They make it increasingly difficult to outperform the market, said American expert investor Dr Charles D Ellis, who was was the guest speaker at the recent annual IMN African Cup of Investments Conference.

According to him, the reality is that an increasing number of fund clients will consider alternatives to active investment, namely passive investment or unit trusts that track an index (index trackers).

He said he recently realised how high investment costs actually are. “It's absurd to say that the fee is only 1% – and everyone says the same thing.”

As a percentage of assets this does not sound much, but as a percentage of yield it's very high. “When you invest you are not buying the asset but the return, and 1% is a great proportion of a portfolio that in coming years could yield 7%.”

Ellis said the prices of alternatives should be considered when you decide how expensive something is. There is an alternative and that is passive or index investments, where the fees are low.

He referred to research by Morningstar (which measures performance of funds) that showed “the lowest fees are the one thing that can predict which manager will deliver the best results in future”.

Ellis believes one of the big mistakes the industry makes (instead of giving advice) is to try and beat the markets.

“Fifty years ago it was easy to do so, because other investors didn’t have important research at their disposal, never met with the heads of companies and traded shares once in two years for reasons that had nothing to do with the market.”

Now there are investors who “are just as smart and informed and ambitious” as fund managers.

Ellis said that beating the markets is a game that has no winner.

This is not only because of huge competition, but also owing to the high portfolio turnover (how often assets in a portfolio are bought and sold), which increases costs.

 - Sake24

For more business news in Afrikaans, go to

*Follow Fin24 on TwitterFacebookGoogle+ and Pinterest 



Read Fin24’s Comments Policy publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
1 comment
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The 25 basis points interest rate increase is:

Previous results · Suggest a vote