(Investment Business Update Special November 1996)
Much has been written recently about total expense ratios "TERs" and not all that has been written has proved terribly accurate. It is all well and good to make comparisons between various funds and finance centres - offshore or otherwise - but the facts should be carefully analysed before drawing conclusions or making bold statements with which to grab headlines.
For example, one particular data source* was the foundation of numerous articles in the offshore press and national newspapers which claimed that offshore funds were more expensive than their onshore counterparts and, even more damaging, offshore funds contained hidden charges.
The Guernsey Financial Services Commission, convinced that the facts did not add up where Guernsey funds were concerned, set out to examine the data for itself.
The findings did not surprise us but, as the reality may not make headline news, it was felt appropriate to reveal the actual facts in this edition of UPDATE.
As the schedule below illustrates, the TERs of Guernsey funds were at or below the TERs of the sector averages in all but one case. Moreover, a further analysis showed that for Global Bonds, UK Cash, Far East Equities and Global Equities, Guernsey's TER averages were less than the UK. In the case of European Equities, the TERs were the same as their onshore counter-part.
It follows that the inclusion of Guernsey funds reduces the overall average TERs for the whole sector.
As for hidden charges, under Guernsey regulatory requirements for Class A and Class B funds, there must be full disclosure of charges.
(*) The data source, Fitzrovia, surveyed UK funds and similar type funds in the following European offshore jurisdictions: Dublin, Guernsey, Isle of Man, Jersey and Luxembourg. The bracketed figures in the chart below reflect the number of funds surveyed to determine the total sector average.
Fund Categories Total Sector Guernsey
Average TERs Average TERs
Europe Bonds (12) 1.25% 1.00%
Global Bonds (47) 1.40% 1.17%
Japan Bonds (6) 1.13% 1.13%
United Kingdom Bonds (37) 1.16% 1.04%
United States Bonds (12) 1.23% 1.17%
Europe Cash (2) 1.18% -
Global Cash (13) 1.17% 1.16%
Japan Cash (8) 0.95% 0.68%
United Kingdom Cash (29) 0.96% 0.60%
United States Cash (19) 1.00% 0.62%
Europe Equities (60) 1.75% 1.62%
Far East Equities (58) 1.91% 1.46%
Global Equities (60) 1.78% 1.44%
Japan Equities (44) 1.75% 1.47%
United Kingdom Equities (70) 1.61% 1.69%
United States Equities (51) 1.65% 1.52%
* The Hidden Costs of Investing by Paul Molten, Fitzrovia International Limited, London - September 1996
For further information contact Peter Crook on Tel: +44 (0) 1481 712 706 or fax: +44 (0) 1481 712 010 or e-mail: firstname.lastname@example.org
Visit the Guernsey Financial Services Commission Web Site at Click Contact Link
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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