Post: Fractional shares, comparison of fees versus performance of active funds & correlation of commodities with robo adviser funds

Fractional shares, comparison of fees versus performance of active funds & correlation of commodities with robo adviser funds

Here is a sample of the questions that were discussed In this week’s PensionCraft live Q&A call with Ramin. If you want to find out the full answers to these questions or ask some for yourself, then you can subscribe our membership Patreon here

Comparison of fees versus the performance of active funds.

Asset Management Market Study Final Report: Annex 4 – Assessing the relationship between the price and performance of retail equity funds in the UK, June 2017

  1. Our interim report summarised results from studies of the US mutual funds industry, which pointed towards there being a negative relationship between the cost of a mutual fund and the performance of the fund manager. The interim report also included initial results from the UK retail active fund industry, suggesting that there was no clear relationship between price and performance.
  2. If there is a negative relationship between price and gross performance for UK active funds this would suggest a breakdown in the effective functioning of competition between active fund managers as it would indicate that all else being equal, asset managers are able to charge more for worse performing products.
  3. Following the interim report we have performed further analysis of the relationship between the OCF of retail active funds in the UK and performance and have found that:

  • Overall, there does not appear to be a clear linear relationship between fund charges and the gross performance generated by the fund manager.

  • Looking at the relationship between charges and performance net of fees we find some evidence that more expensive active funds underperformed cheaper active funds. However, the strength of this relationship varies according to the investment category and performance metric being assessed.
  • The majority of funds cluster within a narrow price range but often deliver very different levels of return.

  • To view ny interview with Andrew Innes about the SPIVA report please click (here) 

Please discuss fractional shares (eg Warren Buffett’s Berkshire Hathaway); Are fractional shares a good idea? Where’s the best place to get them? 

  • Bendini: Berkshire offers class B shares that are 1/1500th of a normal class A share, so you can buy parts of Berkshire in ~$225 increments at the moment
  • Revolut offers fractional shares and Berkshire B shares are listed here too (here)
  • Freetrade is about to offer fractional shares (here) and they offer Berkshire Hathaway B shares too (here)

  • If you are buying small amounts be very careful with fixed trading fees
  • Let’s say you’re buying £5 of a share and the trading fee is £5 per trade, that’s a 100% fee!
  • Generally the larger the amounts you buy and sell the lower the percentage fee you pay (with fixed trading fees)
  • For huge share or fund prices, fractional shares make sense but these companies usually do a share split to make their prices more attractive for small investors

How correlated are commodities with other asset classes. An example of a correlation matrix based on an aggregation of robo fund ETFs which includes commodities.

COMF="ETFS Longer Dated All Commodities GO UCITS ETF" (ISIN JE00B24DMC49) 

SGLP="Invesco Physical Gold ETC" (ISIN IE00B579F325)

For PensionCraft supporters you can view the full answer to this and other questions by viewing the video of the call (here)

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