Can you hold the same investments but with lower costs?

Our ethical management approach ensures lower fees… resulting in more performance staying in your pocket.

Can you hold the same investments with lower costs?

 

 

  • The answer to this question in many situations is yes….
  • Lower Charges = More of the investment return staying in your pocket

 

Most of the managed / mutual funds that are available have multiple ‘share’ classes of the same fund, designed for specific end clients (average retail client via an adviser, investment banks, other fund management groups, charities). The difference in the annual management fee charged by the Fund Manager for the various share classes can be significant and in some cases, well over a 1%pa difference. 

 

In general, a normal retail investor would be invested in a retail or standard share class of the fund which in most cases would be the most expensive. From the annual management fee, the Fund Manager would then pay an amount to maybe a platform provider and/or to a financial adviser as a Trail Commission. 

 

As different funds have a different % rate of trail commission being paid, our view of that is this can result in advisers possibly only recommending funds that pay higher commissions and as such, maybe the client is not being provided the best advice and being invested in the better funds.

 

However, most Fund Managers now offer commission free share classes (commonly known as Clean Class) which results in the investor having lower management charges….. resulting in more of the return being retained by the investor.

 

I have provided an example below…………… The Baillie Gifford Global Discovery Fund is a very highly rated fund and has performed very well for investors over the years.

 

Investors of Ethical Offshore can access the A class version or the B class version of the fund. It is the exact same fund, so the exact same investment strategy for both A class & B class but with different management fees being charged internally by Baillie Gifford.

A class = 1.52%pa          B class = 0.76%pa

 

baillie-gifford-logo      10 Year Performance

  • Baillie Gifford Global Discovery A class – (10 year performance 577.8%)
  • Baillie Gifford Global Discovery B class – (10 year performance 633.2%)

 

So an investment of £ 10,000 into each version of the fund over the same time period, experiencing the same gross investment returns and volatility, but by investing in the B class version of the fund, our investors would have generated an extra £ 4,970 of value (an additional 0.95%pa of compounded return).

 

 

Another example of this benefit is with the Guinness AM Global Equity Income Fund, which is a popular fund held in many offshore portfolios. The below example is comparing the C class version of the fund (which seems to be the version more widely held for offshore portfolios) and the Y class version which can also be accessed through Ethical Offshore.

C class = 1.84%pa          Y class = 0.84%pa

 

Guinness-Asset-Management-logo    10 Year Performance

  • Guinness AM Global Equity Income C – (10 year performance 156.3%)
  • Guinness AM Global Equity Income Y – (10 year performance 180.3%)

 

So once again, an investment of £ 10,000 into each of the versions of the fund, over the same 10 year period, experiencing the same gross investment returns and volatility, but by investing in the Y class, our investors would have an extra £ 2,580 of value (an additional 1.01%pa of compounded return).

 

Finally our last example, which is comparing 2 different versions of the Rathbone Ethical Bond Fund. Generally speaking, bond or fixed income funds target a lower level of risk and volatility and as such, will generate returns that are lower than that from higher risk equity type funds. So it is even more imperative to try and reduce your costs with more cautious type funds such as Bond funds.

The below example is the performance of the I class (which we at Ethical Offshore have exposure to via the Sustainable Ethical Allocation Portfolios) and the R class. The current management fee is 0.66%pa (I class) and 1.28%pa (R class)

rathbones10 Year Performance

  • Rathbone Ethical Bond I – (10 year performance 90.1%)
  • Rathbone Ethical Bond R – (10 year performance 77.4%)

So once again, the same £ 10,000 amount invested into each of the 2 versions of the fund, over the same period, investors in the I class would have generated an additional £ 1,270 of value (an additional 0.74%pa of compounded return).

 

 

WHY ARE WE DIFFERENT?

 

We are not driven towards ‘commission paying’ funds and as our revenue is generated from the charging of a transparent client management fee, this ensures that we are providing guidance on Fund Managers and investment strategies for our individual clients, based on the actual needs of the individual clients. We are therefore not influenced by financial incentive from fund groups and as such, we can provide our guidance based solely on fund manager merit.

 

We have an incentive of generating superior returns as the greater return we generate for our clients, we also benefit. So if we can identify a way to reduce clients costs, it not only benefits the clients by them keeping more of the funds performance in their pockets…… it also benefits our firm.

 

And that is why we will always use the lowest charging structure version of the fund available with the various Life Companies and Direct Platforms.

 

If you would like to see if there are lower cost versions of the managed funds that you are holding (Same Investments with Lower Costs), press Compare Fund Management Costs

Example of the Fund Managers we use: