Australian cash invested in underperforming funds.
Written by Oksana Patron, the article discusses information from InvestSMARTs media release "$414bn of Australia’s hard earned cash is invested in underperforming funds". The following article appeared in Money Management on September 24, 2018.
InvestSMART research
Digital wealth provider, InvestSMART has found that $414 billion of Australia’s cash is invested in underperforming funds, while many of the country’s biggest fund managers are charging fees for no, or underwhelming, performance.
The firm’s calculations, which were based on analysis of 9,300 managed funds in Australia, revealed that out of the 5,297 funds with a 10-year track record, 78 per cent underperformed their benchmarks by an average of 1.88 per cent, with average fees at 1.74 per cent.
“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,” InvestSMART’s chief executive, Ron Hodge said.
According to Hodge, this was largely due to the fact that benchmarks did not have any transaction costs and were a hypothetical calculation.
Hodge also noted that technology could be a key solution to that if it offered investors help in lowering the total costs of investing and helped them get a better transparency around fees.
“Fund managers 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.
The company said it believed that even though investors could not control the performance of funds, they could have a better control over the fees they are paying.
Frequently Asked Questions about this Article…
The main issue is that a significant amount of Australian cash, $414 billion, is invested in funds that underperform their benchmarks. This means investors are not getting the returns they could potentially achieve, largely due to high fees charged by fund managers.
Out of 9,300 managed funds analyzed in Australia, 78% of the 5,297 funds with a 10-year track record underperformed their benchmarks by an average of 1.88%.
Most fund managers underperform their benchmarks primarily due to the cost of their fees. Benchmarks are hypothetical calculations that do not include transaction costs, which can impact fund performance.
Technology can help investors by lowering the total costs of investing and providing better transparency around fees. This can lead to more informed decisions and potentially better investment outcomes.
Fees play a significant role in the performance of managed funds. High fees can erode returns, causing funds to underperform their benchmarks. Investors can potentially improve their returns by focusing on funds with lower fees.
Yes, fund manager fees have fallen globally over the past decade. Advances in technology and regulatory changes are expected to continue putting pressure on traditional fee models, potentially benefiting investors.
While investors cannot control the performance of their funds, they can have better control over the fees they are paying. By focusing on fee transparency and cost-effective investment options, investors can potentially improve their returns.
InvestSMART believes that technology and regulatory changes will continue to pressure traditional fee models, leading to lower fees and potentially better outcomes for investors.
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