Billions in underperforming funds: InvestSMART

Written by Eliot Hastie, this article discussed InvestSMART's media release "$414bn of Australia’s hard earned cash is invested in underperforming funds: InvestSMART research". The following article appeared in Investor Daily on September 25, 2018.

Digital wealth provider InvestSMART has found that some of the country’s biggest fund managers are charging fees for no or underwhelming performance.

InvestSMART modelling of Morningstart data has found over $410 billion is invested in underperforming funds after analysing 9,000 funds.

Out of 5,297 funds that had operated for a decade, 28 per cent had underperformed their benchmark indices by an average of 1.88 per cent with fees at 1.74 per cent.

InvestSmart chief executive Ron Hodge said fees were an important part of any equation.

“It is pretty well known in the industry that, over the longer term, most fund managers will underperform their benchmark by the cost of their fees. This is largely because a benchmark does not have any transaction costs,” he said.

Mr Hodge said benchmarks were a hypothetical calculation, but they were an important metric to use.

“Benchmarks are a comparison metric, allowing investors to compare apples with apples when they are looking at a number of investment options,” he said.

Gradually, technology innovation was levelling the field for investors and would have an impact on fund manager fees, said Mr Hodge.

“Fund manager fees have fallen globally over the past decade and we believe advances in technology, along with regulatory change, will continue to put pressure on traditional fee models,” he said.