Unit trust investors becoming more rational, rewarding those charging least

By Alec Hogg

Arm people with knowledge and rational behaviour will surely follow. This truism is reflected in research shared by the Investment Company Institute (ICI) of America proving the direct correlation between money flows and commissions.

In 2017, actively managed equity unit trusts charging less than 0.6% a year (the cheapest 5%) attracted fresh money of $3bn. By contrast, the other 95% of funds witnessed a net outflow of $275bn.

Ditto for index trackers. In 2017, funds charging under 0.2% a year attracted fresh cash of $208bn. The three quarters of funds charging more shared a relatively paltry $21bn inflow. This news is sure to amplify a price war that's been on the go for a couple decades. Bringing more cheer to investors.

Since 1996, the ICI reports, fees charged to US unit trust owners have dropped by almost half. Clearly, most American retail investors now understand that even fractionally higher costs have a big impact on what they eventually get back. And where the US goes, the rest of the world tends to follow.