Here's how much fund manager fees are eating into your investment returns

Pixels the movie, starring Pac-Man.

“Good returns are meaningless if they are being eroded by high fees,” says Chris Brycki, Stockspot founder in his latest “Fat Cat Funds” report today.

Brycki studied 3,390 funds with more that $570 billion in assets under management, which took a total of $6.7 billion in fees to gauge performance and any relationship between the fees paid and performance earned by the end investors in their super or investment accounts.

Brycki broke the funds into five categories ranging from “fat cat” to “fit cat” funds. Fat cats are those who have underperformed in their investment category on a 1, 3, and 5-year time horizon. The second filter of underperformance by more than 10% over five years is then applied

Fit cats on the other hand are those funds which “consistently outperformed over long periods,” the report said. They have the polar opposite performance characteristics of fat cats.

Also at polar opposites are the fees charged by the fat cats and fit cats as the table below shows. 53% of fit cats charge less than 1% in fees while only 18% of fat cut funds charge less than 1% fees. On the other hand 40% of fat cut funds charge fees of more than 2.5%.

That is important when return and fees are combined with fat cats eating 23% of the total returns in fees, while fit cat fees only account for 9% of the total return.

Some 72% of fat cat funds come from the big four banks, or AMP, and the total fees paid by consumers to these funds is $790 million per year, Brycki said.

“Most people pay no attention to their super accounts and end up in the default super account chosen by their employer. Given you could lose up to a quarter of a million dollars in fees in a ‘Fat Cat Fund’, I would recommend everyone review their super accounts now – the younger, the better – it’s an awful amount of money to simply throw away,” Brycki said.


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