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High fees linked to Fat Cat Funds

Array funds Array

28 September 2016

| By Jassmyn |

Funds management

Fat Cat Funds that consistently underperform are trapping $59 billion a year with $777 million paid in fees, according to Stockspot.

The robo-adviser's latest Fat Cat Funds report found the top Fat Cat Funds were ANZ (OnePath) with 239 Fat Cat Funds, AMP/AXA at 81 funds, and Westpac (BT) at 63 funds.

The top Fit Cat Funds were Investors Mutual (at 75 per cent), SG Hiscock and Company (70 per cent), and REST Industry Super (43 per cent).

Stockspot chief executive, Chris Brycki, said: "Almost three quarters of the Fat Cat Funds charge over 1.5 per cent in fees. On the other hand 78 per cent of Fit Cat Funds charge much lower fees ranging between 0.2 per cent and 1.5 per cent. The research shows a clear relationship between high fees and poor investment returns".

The report also showed that industry super funds continued to outshine their retail rivals with 39 per cent of retail funds deemed as Fat or Flabby Cat, compared with 13 per cent of industry funds.

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"It's not a matter of industry funds being superior, most retail super funds actually do better pre-fees, however after fees they deliver a significantly poorer result. What is the point of good returns when they're eroded by high fees?" Brycki asked.

The report found 30-year-olds today could lose nearly a quarter of their lifetime super savings in fees if their money was trapped in an average Fat Cat Fund, and people in their 50s could lose over $100,000 in the years leading up to retirement.

"Regardless of your age if you're in a Fat Cat Fund [with] high fees [it] could be a total disaster for your ability to pay for a comfortable retirement," Brycki said. "The problem is compounding fees. Two per cent in fees doesn't sound like a huge sum, but the compound effect over 30 or 40 can mean a quarter of a million dollars."

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