I got really excited recently when I noted the addition of some of the CoreShares funds to the list of funds on one of the LISP platforms that we use…
And then I started doing some quotes to see what the effect the addition the CoreSharesTop50 would have on the fees on the client’s portfolio. I was surprised to see that the EAC of the Top50 fund is just under 1.5% which seemed really odd for a passive fund that claims to have really low fees. So I started investigating…
I started with the fact sheet for the fund which shows an annual fund fee of 0.2% (max) and a TER (total expense ratio) of 0.26% (including the fund fee). The TIC (total expense ratio) shows a figure of 0.43% but there is no mention anywhere of the EAC (effective annual cost) on the fund. So I called the CoreShares Call Centre and was told that I would have to open an account to see this information (which seemed very odd). I called again and was then told to send an email requesting the info, which I did. Still nothing, so I called again and was told it would be sent to me (still waiting).
The next step was to pull the missing information from Morningstar (through a connection in the asset management industry) and it turns out that the TER may well be 0.26% but the transaction costs (according to Morningstar) are around 1.24% so the EAC is actually around 1.5%. So much for cheap passives. I suspect that the high transaction costs might be a function of the fund size but I’m still waiting to hear.
So for now, until we can clarify the cause of the high EAC on the fund, we’ll be staying away from it and until further notice, you be better off (from a fees point of view at least) in an actively managed fund like the Coronation Top20 Fund if you are looking for a concentrated equity portfolio.
It is also absolutely crazy that we have 4 different ways of expressing the fees on a fund -and they are all different:
- Annual management fund
- Total expense ratio
- Total investment charge
- Effective annual cost
Surely “total” means “everything” and there should be no difference between the Total Expense Ratio, Total Investment Charge and the Effective Annual Cost…little wonder that there is so much distrust in the investment industry!
We have come across many clients recently who are wanting to move their
funds into the “bank” following the very poor returns of the past 5 years. Their
rationale usually revolves around the fact that at least they would be
guaranteed a return of ±7% per annum compared to the dismal returns from the
What we have to keep reminding them is that yes, they may well get a “guaranteed
return” in the short term, but we can also guarantee them that they will be poorer
in the future if they follow this route. Money markets are great for short term
use – they are not appropriate for long-term investing. As someone once said to
me “If you want to accept cash
returns as your worst-case scenario, then you also have to accept cash returns
as your best-case scenario”
Perhaps it is pertinent to remind ourselves about a few good old
- Markets move in cycles: they go up and down over time (not
necessarily in that order).
- Nobody knows exactly when this will happen – no one can
consistently time the markets.
- Equity markets (shares) should provide out-performance over
the longer term (>10 years) but they are also more volatile over
- High risk does not necessarily imply a high return (take
gambling for instance).
- Diversification is the prudent way to manage risk. This
includes diversification among various asset classes, regions and
- Be mindful of the costs associated with your portfolio –
higher costs will generally lead to lower returns over time.
Now is NOT the time to be deviating from your
investment plan (unless your personal circumstances have changed). We
don’t know which sector will perform best next nor do we know when the rand
will weaken further or even if the market has bottomed. We do know, however, on
balance of probability (built up over a very long time) that as an asset class,
equities will outperform property which
will in turn outperform bonds which will outperform cash (after tax). This
is a fundamental consequence of the risk/return relationship. In fact,
statistics show that SA asset classes have produced the following real returns
Fortune Strategy, Bradley et al (the international experience is similar)
fail to realize is that with the risk/return relationship comes volatility!
There are periods (which can extend for a number of years) when the equity
markets can be extremely volatile – the way to combat this is to have a
well-diversified portfolio with sufficient access to cash (short term funds) so
as to allow you to ignore the ups and downs in the short term. “The psychology of the speculator militates
strongly against his success. For by relation of cause and effect he is most
optimistic when prices are highest and most despondent when they are at the
bottom.” Remember you are an investor and not a speculator.
Warren Buffett who said “Be fearful when others are greedy and greedy when
others are fearful”. When people start to get greedy then it is time to be
fearful and vice versa. From what I am seeing around me, there is too much fear
– maybe, just maybe, it is time to start “getting greedy”.
I was recently approached by a client about whether or not I thought he should sell his rental property. Let’s take a look at the facts:
Bought in 2001: R210k (a further ±R70k spent on renovations).
Current value: ±R1.58m (he hopes)
Current rental: R6000 pm (it’s a 27 m2 1 roomed apartment in Stellenbosch)
Levies + rates: ±R1300pm
Net rental: R4700pm which equates to a yield of under 4% (3.6% before any tax has been paid on the rental). Continue reading There’s something insane about buying a R1.6m property that you can rent for less than R6000pm
Much has been written and much will still be written about the Steinhoff saga but after listening to some of the testimony and reading the bit below…there is only one conclusion that can be made and that is this: Ethics aside, Marcus Jooste’s biggest mistake was failure to diversify. It’s a classic school-boy error of over-confidence. We have seen it before with the collapse of Lehman Brothers where employees had their entire life savings invested in just one share and we will see it again in the future.
If there is a financial planning lesson here it is this: diversification is essential to a successful long-term investment strategy. Even if you are the CEO of a huge company you should not have all your money invested in just your company share. You need to diversify and this means holding a wide-range of different asset classes and currencies. Failure to diversify will ultimately result in failure to accumulate wealth!
“Jooste family trust held R3bn in Steinhoff shares on day of fallout
On the day of the Steinhoff share price fallout, Jooste’s family trust which has an investment company Mayfair, lost R3bn. The company held 68 million Steinhoff shares.”
ENT specialists will tell anyone who listens that the only thing that you should ever stick into your ear is your elbow (it’s impossible, just as it is impossible to lick your elbow). And yet a quick trip down the supermarket aisle or peak into just about any bathroom cabinet will show that there is a massive market for ear-buds! Doctors tell us not to use them and yet we still do. We do things that are bad for us, even when we know that they are bad for us.
This got me thinking about share trading – there seems to be no end to the courses and platforms on offer and while the research shows that people don’t make money from share-trading, we still believe that we know better and that we can beat the markets. Perhaps online share-trading platforms are the ear-buds of the financial markets?
I received another unsolicited email today from an operation called “savemoney.co.za” about a tax-free savings account.
It’s just Old Mutual in disguise and despite claiming to offer the “best tax-free savings account in South Africa” a little digging shows that this is VERY far from the truth.They are, in fact, ripping off poor, unsuspecting and ignorant people. Continue reading Talk about a wolf in sheep’s clothing
I recently watched someone using a leaf blower to clear their pavement. As I watched, it struck me what a pointless exercise it was and it crossed my mind that the leaf blower must be one of the most senseless machines yet invented. Continue reading It’s time to do the Mickey Blue (again)
A few years ago, during the National Budget Speech, government put a cap of R350k pa on retirement contributions. It appears that no one at treasury has given this much thought Continue reading It’s time that treasury stopped being short-sighted when it comes to the wealthy!
Am I the only one who dislikes Tax Free Savings Accounts (TFSA) and all the hype that goes with them?
Let’s take a step back before getting all excited about TFSA’s. They were introduced (by Government) to encourage non-savers to save and unfortunately, Continue reading The great Tax Free Savings Account con!
I recently had an interesting discussion with a friend of mine (we don’t do her financial planning). The conversation turned to money Continue reading It’s time we had different conversations with our clients…