The PFV Handbook has unstructured data describing fund fees. Whilst useful to some extent there are significant limitations as to the comparability across funds. For this a standardised measure such as Total Expense Ratio (TER) and Real Estate Expense Ratio (REER) should be supplied.
The value for money delivered by managers has become a significant issue for investors and regulators across markets. More effort should be made in publishing like-for-like measures of cost such as TERs and REERs. These can be further broken down into component parts to provide further transparency for investors on whether fees paid are proportionate to the activities of the manager.
The ad valorem fee structure remains the preferred basis for calculating fees with all funds reporting fees using either net asset value (NAV) or gross asset value (GAV) for the fee basis. For funds included in the analysis there does appear to be some evidence of a shift away from fees charged on Gross Asset Value (GAV) to Net Asset Value (NAV) (Figure 5.1). In 2007 around 65% used GAV as the basis for the fee calculation this compares to 51% of funds in the 2019 sample. This is in keeping with the move away from using debt in constituent funds and should be seen as a positive for investors.
Source: Authors own calculations using the PFV Handbook
Figures 5.2 and 5.3, illustrate the average and range of fees charged by funds. There appears to be little change between 2009 and 2019 in the average fee charged. Funds charging fees based on GAV typically between 0.3-0.6% per annum with a mean of 0.46% in 2007 and 0.49% in 2019. A similar trend is observed in funds charging fees on NAV with fees between 0.5%-0.75% per annum with a mean of 0.78% in 2007 versus 0.71% in 2019.
Given the limited changes to the fee structure of funds since 2007, there does appear to be significant scope for innovation in this area as investors demand more transparency to compare products on a value for money basis.
