{"id":6393,"date":"2020-11-13T14:06:00","date_gmt":"2020-11-13T12:06:00","guid":{"rendered":"https:\/\/sifterfund.com\/kannattaako-aktiiviseen-rahastoon-sijoittaa\/"},"modified":"2020-11-17T11:41:52","modified_gmt":"2020-11-17T09:41:52","slug":"does-it-make-sense-to-invest-in-an-actively-managed-fund","status":"publish","type":"post","link":"https:\/\/sifterfund.com\/en\/does-it-make-sense-to-invest-in-an-actively-managed-fund\/","title":{"rendered":"Does it make sense to invest in an actively managed fund?"},"content":{"rendered":"\n
Equity investors have three basic choices. Invest directly in stocks, invest in passive funds (ETF), or invest in actively managed funds such as Sifter. In this article, I offer a few perspectives for you to think about.<\/p>\n\n\n\n
Investors often believe that investing in an actively managed equity fund is expensive compared to investing directly in stocks or investing in passive funds.<\/p>\n\n\n\n
Let\u2019s take a couple of examples to evaluate that view. In these examples, the alternative of investing in an actively managed fund is represented by the Sifter Fund (Sifter Fund Global R), which invests in high-quality companies globally.<\/p>\n\n\n\n
How much do you pay in trading fees when you buy and sell stocks directly? <\/h3>\n\n\n\n
The example below illustrates the fees payable by a private investor who builds their own globally diversified portfolio of 30 companies. This example is based on the typical number of orders per year for the Sifter Fund.<\/p>\n\n\n\n
Invest \u20ac100,000 in shares by yourself<\/th>
<\/th>
Cost estimate, \u20ac<\/th>
Cost estimate, %<\/th><\/tr><\/thead>
You buy shares in 30 companies in the US, for example<\/td>
\u20ac5 fee \/ transaction<\/td>
\u20ac150<\/td>
0.15%<\/td><\/tr>
You earn dividends of 2% on average You pay 30% capital gains tax on the dividends<\/td>
\u20ac2,000 in dividend<\/td>
\u20ac600<\/td>
0.6%<\/td><\/tr>
You sell 5 shares<\/td>
\u20ac5 fee<\/td>
\u20ac25<\/td>
0.025%<\/td><\/tr>
You buy 5 shares in their place<\/td>
\u20ac5 fee<\/td>
\u20ac25<\/td>
0.025%<\/td><\/tr>
You pay 30% capital gains tax on profits<\/td>
\u20ac5,000 in profit<\/td>
\u20ac1,500<\/td>
1.5%<\/td><\/tr><\/tbody>
<\/td>
<\/td>
<\/td>
2.3%<\/td><\/tr><\/tfoot><\/table>Disclaimer: the above table is only an example, and an investor could be able to carry out orders at lower fees through their bank, or an investor\u2019s taxation could be different for investments made through a corporate entity, for instance.<\/figcaption><\/figure>\n\n\n\n
In the above example, the investor pays total fees of 2.3% for putting together a portfolio on their own. Obviously, the 2nd year of owning the 30 stocks become less expensive for a private investor. By comparison, the corresponding annual fees for the Sifter Fund are 1.65% for R Class and 1.25% for PI Class.<\/p>\n\n\n\n
As a private investor, you often pay fairly high prices when you buy shares globally. As a professional investment entity, the Sifter Fund always pays lower trading fees on average than a private investor.<\/p>\n\n\n\n
In 2019, the Sifter Fund\u2019s trading fees represented 0.0083% of the value of the portfolio and the fund generated an annual return of 31.3%.<\/p><\/blockquote>\n\n\n\n
Taxes are the largest expense for an investor<\/h2>\n\n\n\n
Investors rarely calculate how much they pay in capital gains tax and dividend tax. For long-term investors, in particular, these taxes erode their returns.<\/p>\n\n\n\n
Dividend tax<\/h3>\n\n\n\n
When companies pay dividends, private investors often have to pay taxes on the dividends in accordance with the tax laws of their country of residence. A fund, on the other hand, can claim refunds on taxes paid.<\/p>\n\n\n\n
The Sifter Fund is allowed to reclaim approximately 60% of the dividend taxes it pays, which it then reinvests to earn money for its investors.<\/p><\/blockquote>\n\n\n\n
The companies in Sifter\u2019s portfolio pay dividends of two percent on average. Depending on their country of residence, private investors would be liable to pay about 30% of those dividends in taxes, which would reduce the returns of their portfolio. This makes a significant difference in the long run.<\/p>\n\n\n\n
Capital gains tax<\/h3>\n\n\n\n
Capital gains tax has an even more dramatic impact on an investor\u2019s costs and returns. When an investor makes changes to their portfolio and sells stocks for a profit, the investor is liable to pay capital gains tax (assuming the investments are not managed under a capital redemption policy or insurance wrapper). Funds do not pay capital gains tax in corresponding situations, which means higher returns for investors.<\/p>\n\n\n\n
For a fund investor, taxes on capital gains are only realized when the investor withdraws their investment from the fund.<\/p>\n\n\n\n
This enables a higher leverage on compound interest, which means that more of the investors\u2019 money continues to work for them.<\/p><\/blockquote>\n\n\n\n
From the perspective of fees, a fund is a favorable way to invest in foreign markets<\/h3>\n\n\n\n
The ongoing annual fees of the Sifter Fund were 1.65% for R Class and 1.25% for PI Class (2019). Compared to an investor making direct transactions on their own, this makes a fund a more favorable alternative for investing in the international stock markets.<\/p>\n\n\n\n