The Lemon Fool

They have been criticised, but I say thanks to those "faceless European bureaucrats" who insisted on them in their new form. Why? Because they give for each IT a much more realistic measure of costs. Here are three of the ITs I invest in, with the costs as stated in the KIDs, and their AIC-measured costs in brackets.
North American Income: 1.44% (1.05%).
Aberdeen Asian Income: 1.45% (1.19%).
City of London: 0.88% (0.42%).

Notice much different? I certainly do. I was going to dump Aberdeen Asian as a useless underperformer anyway and buy an Asia-Pacific tracker. I may do something similar with the other two as well. Trackers cost about a tenth of the cost of a managed fund (maybe even less). So why should I give about 1% of my money, each and ever year, to an active manager?

So why should I give about 1% of my money, each and ever year, to an active manager?

You shouldn't, unless you are content to try buying those that outperform the passives. It is often stated that passives outperform the majority (70% or so) of actives, for me that still offers a good number of opportunities to outperform. I track my portfolio against the Vanguard Life Strategy 60 & 80 funds, currently we have a good record of doing better but I have advised my wife, who does not want to be bothered with this investment lark, to move the money to one of those should my demise arrive sooner than I expect.

There is a good case for passive investing, focusing on costs is not part of that case for me. I much prefer to concentrate on performance which is a lot more rewarding in my experience.

Avantegarde wrote: Because they give for each IT a much more realistic measure of costs.

I think that's because they are attempting to estimate dealing costs, although why they don't just change the accounting rather than semi-guess remains a mystery. Elsewhere I would have hoped they could have assumed the buyers had sufficient knowledge of compound interest to know that £ 10000 invested earning 5% will be worth £ 10500 in a year's time. It's not even correct as a purchaser will incur market spread, Broker fees on purchase and Stamp Duty. Spread could be important on more exotic, less traded ITs.

I noticed the disparity on Law Debenture and Edinburgh Investment trust puts both well over 1% , plus transaction charges , a respectably low .05% or so, despite management charge of under 1%

I was well away that the companies charges were on top of the management cost percentage, ie directors fees etc but given Law Debenture has an explicit charge of .3% of Net Asset value rather than the reported 1.34% ...

Looking more carefully Law Debenture has included gearing costs of .88% in the 1.34% giving costs of below .5% pa, very respectable.

Whilst the gearing cost is a cost, it is a business cost that hopefully brings a return and is not money that is a pure cost and drag but hopefully has a benefit.

The figures for some passives is interesting by comparison, some are much more expensive than you think and others are effectively free, (stock lending, very low explicit costs .07% typ)

The new information is useful but still needs interpretation.