Graham Macdonald, MBE
MBMG International Ltd.
Nominated for the Lorenzo Natali Prize
Passive V Active - Which is healthy for you? Part 1
asset classes -
allocation - and
each asset class
a fee for their
- either at the
asset class or
level, or both.
In return for
this they try to
the case of
it would be
the FTSE, MSCI
or S&P500. They
do this by
in this case)
assets that make
that their skill
assets (or asset
in two key ways.
selected on a
lower. The first
was designed to
The range of
concentrate on a
try to improve
on this in
ways. Some use
(the way the
FTSE, etc., is
in the passive
exposure to a
as the minimum
set of rules.
funds such as
embody them. In
the case of the
in such a way as
to minimise the
the returns of
with all passive
fees are low as
the ‘recipe’ is
fixed and the
have been around
for a while in
guises but it is
that they are
widely used in
the many more
markets. Why the
tend to view
them as direct
active funds. If
it is framed in
this way, the
becomes one of
‘either/or’ - in
is better than
most often then
made between the
lower fees of
funds vs. the
of the active
Somehow the idea
exciting - even
when it’s very
the concept of
are beginning to
choose them more
into using the
save on the
of costs on
to view these
other - they can
in a portfolio.
allow us to get
strategies at a
We value this
this field, such
us to get
or high yielding
had to hope that
in other words,
there was no
style drift. Now
we can be
certain of this
outcome if we go
To be continued…
The above data and research
was compiled from sources believed to be reliable. However,
neither MBMG International Ltd nor its officers can accept any
liability for any errors or omissions in the above article nor
bear any responsibility for any losses achieved as a result of
any actions taken or not taken as a consequence of reading the
above article. For more information please contact Graham
Macdonald on [email protected]
How to choose a fund - Part 5
One of the most confusing parts to funds can be the charges you pay and who
you are paying that money to. There is also the issue that not all funds or
advisers charge the same. Obviously though, whatever the cost these charges
are going to affect the overall performance of the fund so they must be
accounted for when calculating what your risk/reward ratio is.
As stated above, charges come in many guises. Let’s look at some of the more
- Annual Management Charge (AMC): This is charged to cover ongoing costs,
such as up to date analysis, and will be deducted from your investment
either annually or quarterly.
- Initial Charge: This is a one off cost charged by many funds as an ‘entry’
fee. The purpose is to cover set-up costs and can apply to both open and
closed end funds although Exchange Traded Funds do not use them.
- Administration Fee: This will also be charged on a regular basis and is
- Policy Fee: Is another word for administration charge and usually only
refers to policies which have regular payments.
- Investment Administration Charge: Will be charged on a percentage basis
for regular premiums and as a one off for lump sums. This is when any
buy/sell/fund switches are done.
- Early Surrender: Can be applied if the policy is closed in toto before an
agreed period of time which should have been explained to you before you
started any investment.
- Performance Charge: If a fund reaches a pre-agreed percentage gain then
any further gains can be subject to a performance fee.
- Adviser Fee: Your financial adviser will also charge a fee if you wish him
or her to actively manage your portfolio.
So what now? You have done all your due diligence, you have selected the
funds appropriate to your risk reward ratio and you want to start investing.
How? Well, you can either invest directly into funds or use a life company
as an umbrella. As with all things, there are pros and cons to both.
If you are only looking for short term gains with the funds you invest in
then do not bother with life companies as the charging structure over the
short term can be prohibitive and you may well have to pay early surrender
charges. However, if you are looking beyond five years, and preferably
longer, then some life companies’ products can help a lot as you will be
buying at institutional rates and not retail ones. Also, your charges, after
a certain period of time, make the overall cost of running the portfolio
considerably cheaper than investing directly over the same period of time.
Caveat emptor though! Some life companies will charge high annual management
costs in perpetuity. Over 20 to 30 years this can add up to be a lot of
money. Others though will not and after anything between five and ten years
will drop their charges to very little at all.
There are other benefits to a life company. For a start, the ease of
administration as you only have to refer to one place to see how you are
performing and not a load different places. Also, if you want to buy a new
fund then you ‘borrow’ from the life company so you can buy when you want
and not have to wait, like you would with dealing directly, until the
original fund was sold. Once the original fund has been sold then the life
company can be repaid. This also applies to investment trusts, ETFs, direct
stocks and shares - all of which can be included in a life company Personal
The above data and
research was compiled from sources believed to be reliable.
However, neither MBMG International Ltd nor its officers can
accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a
result of any actions taken or not taken as a consequence of
reading the above article. For more information please contact
Graham Macdonald on [email protected]
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