1. Active vs. passive fund management
Costs
Av. annual trading costs 1.25% %
Weighted av. TER* % %
≡ 66% of 4.5% equity risk premium
The tyranny of turnover: performance drag**
c. 3% p.a.
Portfolio
turnover
UK Large
Cap
Balanced
fund
Global
Equities
Emerging
Markets
Multi-
Manager
10%
0.2%
0.1%
0.8%
0.3%
50%
0.9%
0.5%
3.8%
1.3%
100%
1.8%
1.0%
1.7%
7.6%
2.7%
200%
3.1%
1.9%
3.0%
11.0%
4.9%
* 1.56% from IMA press release, 27 January 2012, for active retail UK equity funds, 1.66% from Lipper
** Data: Frontier Investment Management

2. Active fund managers: who to select?
F&C consistency ratio
Ranks performance over 3 x 12 month periods
The IMA’s 12 major market sectors: 1,086 funds (end-Q2, 2014)
Outcome
Luck
+ Skill
"Fail"
Top quartile
25 (2.3%)
17 (1.56%)
8 (0.7%)
1,061 (97.7%)
Top half
138 (12.7%)
136 (12.5%)
2 (0.2%)
948 (87.3%)