Smart Investing
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The Chinese calendar says this is the year of the dragon. Less auspicious perhaps but for Australian investors this is shaping up as the year of fixed income.
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By taking a few simple steps, super fund members can both boost their retirement savings and legally minimise tax on their super – for themselves and their beneficiaries.
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Self-managed super funds seem set to remain by far the preferred superannuation choice among higher-balance members – particularly those in retirement.
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This is a question that many investors are, not surprisingly, asking themselves. But what might surprise some investors is that the answer is not as elusive as it may at first seem.
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Changes to the ASX operating rules to allow fixed income Exchange Traded Funds (ETFs) to trade on the Australian market will open a new means for investors to efficiently, conveniently and inexpensively diversify their investment portfolios.
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News & Commentary
Priced for success 09 Sep 10
Walter Updegrave, a senior editor with Money Magazine in the
Take a recent column, for instance, with the attention-grabbing headline, Do High-cost Funds Pay Off?
A reader explained that he was trying to choose between two managed funds available through his large retirement fund: “One has higher fees but it also performs better [before expenses].”
And the reader asked a straightforward question. “How can I tell if a fund’s worth the higher price?”
Updegrave identified himself as a long-time supporter of low-cost funds. And he immediately pointed to recent research by fund researcher Morningstar in the US that found low expense ratios had been a more accurate indicator of past investment success than the star ratings system.
In an article on the research findings that was published in Morningstar Adviser magazine, Morningstar’s director of fund research in the US Russel Kinnel had written: “If there’s anything in the whole world of mutual funds [managed funds] you can take to the bank, it’s that expense ratios [based on this research] help you make better investment decisions.”
Indeed, Kinnel presented an argument for investors to treat both low expense ratios and the star rating system as highly useful investment guides.
“We took a snapshot of star ratings and expense ratios from 2005 through 2008, and then tracked their progress through March 2008,” he explains. “For the success ratio, we included funds that were merged or liquidated, as well as those that survived, in order to calculate the number that both survived and outperformed.
“How often did it pay to heed the expense ratios? Every time. How often did it to pay to heed the star rating? Most of the time.”
For details of the research, which covered US funds, click here (PDF).
Kinnel concludes with the telling words: “Be sure to go beyond both measures [low expense ratios and stars] to brush up on a fund’s other key fundamentals. Don’t look for the 10-second answer. You should understand management, strategy and stewardship too, before you send in your cheque.”
Of course, low-cost funds management is one of Smart Investing’s favourite subjects. Read the last piece on this issue, published on August 27.
* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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