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Product Costs - Beginners Guide
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Rob B
Posted: 23 October 2021 06:30:49(UTC)
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This topic has been covered a few times across different threads but I could certainly do with a refresher as I’m sure others could. This covers the costs element of the KID/KIID rather than product description or risk and reward profile. I will also keep clear from MiFID II and PRIIP for now as this is meant to be entry level...

Investment product costs can (and should) always be reviewed via the following:

(i) Key Information Document (KID) for Investment Trusts
(ii) Key Investor Information Document (KIID) for OEIC and ETF

Within the KID you will generally find the following information:

(a) Impact on return (RIY) per year - this is the summation of the costs that will be incurred by the fund if you cash in over 1, 3 or 5 years. This includes the items below:

(b) One-off costs (entry and exit)
(c) On-going costs (can be broken down into transaction costs,Insurance costs, other ongoing costs)
(d) Incidental costs (performance fee and carried interests)

The RIY can differ over 1, 3 and 5 years for example if one-off costs are included (which seem to be getting rarer). I like the clarity of this document. It can be an eye opener when you see a KID with an RIY of 6.18% but this thread isn't designed to discuss the merits of costs - just how to understand them better.

Within the KIID you will generally find the following information (does seem a little more opaque when compared to the KID):

(d) One-off costs (entry and exit)
(e) On-going Charges (sometimes broken down)
(f) Performance fee

What the KIID above doesn’t always show is the transaction charge. Take any Vanguard KIID and there is no mention of transaction charge. But if you view the Vanguard Personal Investor costs and charges information it’s very clear there are additional transaction costs and bid spread for ETFs. As another example look at the LF Blue Whale Growth KID. I guarantee there are transaction costs on top of this.

There's a lot more I could drone on about but hopefully this has been a little enlightening. Please feel free to add / correct / enlighten as there may be some peculiarities or muppetry above.

Some guidance on what OEICs are allowed to charge in multi-asset funds (i.e. LifeStrategy) versus ITs (i.e. AVI Global) would be helpful (as in I believe with an OEIC you can't have fund on funds costs).

This is also what happens when you get up around 5am on a weekday - come the weekend the body clock doesn't switch off and the brain is wide awake!
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Tim D
Posted: 23 October 2021 08:46:36(UTC)
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Rob B;191554 wrote:
Some guidance on what OEICs are allowed to charge in multi-asset funds (i.e. LifeStrategy) versus ITs (i.e. AVI Global) would be helpful (as in I believe with an OEIC you can't have fund on funds costs).


Yes, and this is quite an important one to be aware of when comparing some things.

With OEICs of OEICs (e.g Lifestrategy) the OCFs of the sub-funds have to be "rolled up" into the headline OCF. That's there in black and white in the PRIIPs regulations somewhere if you look for it, and you can see the calculation in the Lifestrategy annual report (the "wrapper" charge is only about half of the 0.22% OCF, with the rest being the contribution of the sub-funds' own OCFs).

But for OEICs of ITs (e.g Unicorn Mastertrust or RM Alt Income) or OEICs of ETFs (e.g MyMap) or ETFs of ITs (e.g IUKP) or ITs of ITs (e.g AGT) there's no such roll-up and none of the holdings' own OCFs are included in the reported OCF.

(That's the high level view anyway... I have a vague idea it can get more complicated with more exotic things like RCP, BHMG, HVPE, HGT... might be something about sub-holdings' performance fees do get rolled up Into one the wrapper's additional costs categories? Can't remember.)
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Rob B
Posted: 22 January 2025 19:18:59(UTC)
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Cm258;331949 wrote:
ANDREW FOSTER;331948 wrote:
One of my 'rules' is 'never buy a fund of funds'...which usually rules out multi asset funds

The reason is simple, it's the opaque charging.

Are you paying a charge on the parent fund AS WELL as the constituent funds?

If you are thats very bad, but finding out if you are is usually extremely difficult. And usually seems to be 'yes, you are double paying'.

If you want just look at the top 10 holdings and replicate those ten. Rebalancing every so often if you want to.

How are you paying double in a unitised fund of funds like Vanguard LS60 exactly? Genuinely curious. These implicit costs aren't on the costs & charges disclosure I don't believe.

This is an area Tim D is well versed. For a fund of funds that is comprised of just OEICs I believe you are not allowed to charge above the quoted figure.

Tim D;191571 wrote:
Rob B;191554 wrote:
Some guidance on what OEICs are allowed to charge in multi-asset funds (i.e. LifeStrategy) versus ITs (i.e. AVI Global) would be helpful (as in I believe with an OEIC you can't have fund on funds costs).

Yes, and this is quite an important one to be aware of when comparing some things.

With OEICs of OEICs (e.g Lifestrategy) the OCFs of the sub-funds have to be "rolled up" into the headline OCF. That's there in black and white in the PRIIPs regulations somewhere if you look for it, and you can see the calculation in the Lifestrategy annual report (the "wrapper" charge is only about half of the 0.22% OCF, with the rest being the contribution of the sub-funds' own OCFs).

But for OEICs of ITs (e.g Unicorn Mastertrust or RM Alt Income) or OEICs of ETFs (e.g MyMap) or ETFs of ITs (e.g IUKP) or ITs of ITs (e.g AGT) there's no such roll-up and none of the holdings' own OCFs are included in the reported OCF.

(That's the high level view anyway... I have a vague idea it can get more complicated with more exotic things like RCP, BHMG, HVPE, HGT... might be something about sub-holdings' performance fees do get rolled up Into one the wrapper's additional costs categories? Can't remember.)
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Rob B
Posted: 22 January 2025 19:19:57(UTC)
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WRONG THREAD.
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