Edition: March - May 2015
Investors in active funds
score three own goals
Investors in active funds concede three own goals competing against a well-structured index fund:
- Earning lower returns before fees
- Paying higher fees, to further reduce their return
- Paying performance fees, despite underperforming
Scoring one own goal is disappointing, scoring three is devastating.
These are the six essential points from our comparison that every trustee should consider.
1. Superior returns before fees since inception seven
years ago in January 2008: 10X’s High Equity Fund
(investors with a time horizon of more than 5 years)
has consistently outperformed the large manager
average by 1% pa before fees over 1, 3, 5 and 7
10X’s seven-year track record covers the pre- and
post-financial crises which is long enough to draw
meaningful conclusions from our Index Fund strategy
against active managers ie. this is not just a bull
2. Investor returns are boosted further by 10X’s
materially lower fees: Investor returns are always
reduced by total fees paid.
10X saves clients an estimated 1% in total fees for
administration, advice, investment management,
3. 1% extra equals 30% higher pension: 10X’s
value-add from lower fees and higher returns is
estimated at 2% pa, which translates to approximately 60%
more money at retirement.
4. Asymmetric payoff from active managers. The winning fund margin is very small but the losing fund
margin is wide. One in eight (12%) funds outperformed
10X, with the top fund outperforming by just 0.4% pa
after fees. But, seven in eight (88%) funds underperformed
10X after fees, with the bottom performing fund underperforming by 7.4% pa. (5 years to Dec 2014 – see table). On average,
investors have lost 6.5% pa.
5. Why do SA investors continue to
play the losing investment game? Low cost index investing has become
the mainstream investment choice
for most institutional and individual
investors in the US and other
Why does SA not follow suit?
Some possible reasons include:
- Lack of knowledge and
understanding of the long-term
impact of losing 1% or 2% pa.
- Apathy: “I will get round to it”, but
- Failure to admit we may be wrong
- Hope, blind faith or herd behaviour
(everyone’s doing it).
6. What should you do? You must be informed to make the
best decisions for your retirement
fund. Perform a fee-and-return
benchmarking exercise to measure the
value added or destroyed by your fund.
Hopefully your fund has added value
and you can sleep well at night.
However, if your service providers
have destroyed value then you should
investigate why. Your retirement should
not be at risk due to high fees and poor
We manage several billion rand in
private and corporate retirement
investment funds. Our clients include
Virgin Active, EOH, Deutsche Bank
and Macquarie Bank.
For more information on how 10X Investments can make the most of your employees’ retirement plans, please call 0861 109 109, email info@10X.co.za,
or visit our website at www.10X.co.za
10X Investments is a licensed Financial Services Provider #28250 and
S13B Pension Fund Administrator #24/444.