Portfolio turnover levels lifting investment costs
Not everyone agrees with the findings of a survey carried out by Fitzrovia. One manager maintains increased turnover can provide the key to outperformance.
Investors and their advisers are ignoring a key factor impacting costs of investing. Wide differences in portfolio turnover levels have been revealed by London-based research firm Fitzrovia International. Usually overlooked, the rate at which stocks are chopped and changed can add substantially to the cost of investing in the portfolio. And the cost is not necessarily paid off by better performance. Artemis was found to have the highest turnover of UK unit trusts fund houses surveyed with 176.2 per cent, while ABN Amro was among the lowest with 25 per cent. But Artemis’s more expensive, highly active approach is reaping relatively good returns. According to Standard & Poor’s, its European growth ex-UK fund has returned –24.11 during the past year to date. By contrast, the ABN Amro Europe Equity Fund has returned –40.2. But it is not always that simple. Among those with a high turnover was Isis (formerly Friends Ivory & Sime and Royal SunAlliance) with 104 per cent. Yet the firm’s European ex-UK fund returned only –36.97 in the past year. Responding to Fitzrovia’s findings, Isis fund manager Mike Felton said: “There are several ways to skin a cat. If the manager has the skills, then increased portfolio turnover can provide the key to outperformance, especially in an environment like this where index returns are likely to be dull but volatility remains high.” Using the UK as its case study, Fitzrovia found that the median average portfolio turnover for actively managed equity funds is 53 per cent. The firm estimates that such turnover levels could result in annual costs of between 81 and 97 basis points. Fitzrovia found that fund management companies averaging rates of turnover of above 78 per cent appeared in the highest quartile.
Promoters with low mean portfolio turnover Promoter - Mean portfolio turnover Allchurches - 9.6%
MGM - 22.4%
ABN Amro - 25.0%
Promoters with high mean portfolio turnover Promoter - Mean portfolio turnover Artemis - 176.2%
Britannic - 155.7%
Sarasin - 141.1% Source: Fitzrovia International
