| Investors
will need to watch their step now that the Government has introduced
their CAT-standard for unit trusts and ISAs.
According to Norwich Union,
CAT-standard funds - unit trusts, investment trusts and open-ended
investment companies (OEICS) that charge no more than 1% a year when
held in an ISA - performed better than non-CAT-standard funds over the
past year. Although CAT standards were only introduced in April 1999,
Norwich Union commissioned a backdated comparison of 500 funds,
assuming the standards applied in June 1998. Based on average
performance, the CAT-standard funds returned 7.35% more than
non-CAT-standard funds. This, claims Norwich Union, disproves the
argument that non-CAT-standard funds will make up for their higher
charges in just a few months.
So is this the end of the
story? Should you only consider a CAT-standard ISA? The answer is no,
not necessarily. It is true that high charges detract from
performance. |
For
example, assuming a growth rate of 7% on £3,000 invested over the
next ten years, the Portfolio UK Growth unit trust would grow to
£5,901 with zero charges but only to £4,380 with charges deducted.
CAT-marked index tracker funds would have the lowest charges, reducing
projections by just 4% over ten years.
But take netISA which is
disqualified as a CAT-standard ISA because it charges an initial
charge of 1%. Being penalised for charging a very low initial charge
and an even lower annual fee of 0.35% doesn’t make much sense. So
investors will need to do their homework. netISA’s FTSE 100 tracker
fund was also one of the best tracker funds according to Standard
& Poor’s Micropal who ranked it the best performing FTSE 100
Index fund over 12 months to July 1999. And including the recent
strong rise, it has achieved an annual growth rate, excluding income,
of 17% per annum since it was launched in April 1997. |
