Just doing a little financial housekeeping and I decided to check the AMC on my Irish Life Pension.
All of my money within this pension is in index funds as below so I used the fund factsheets to compare the actual performance with the underlying benchmark. The fund factsheets state that the fund performance includes the AMC which is 1%.
Fund
Comparison Period
Fund Perf
AMC
Benchmark Perf
Tracking Error
PRSA Indexed European Equity Fund
10 yrs
6.49%
1.00%
7.72%
-0.23%
PRSA Indexed North American Equity Fund
10 yrs
12.65%
1.00%
13.95%
-0.30%
PRSA Indexed UK Equity Fund
10 yrs
4.01%
1.00%
5.09%
-0.08%
PRSA Indexed World Equity Fund
10 yrs
9.88%
1.00%
11.17%
-0.29%
So I would expect the annualised fund performance to be 1% lower than the benchmark. But it is not. The fund consistently underperforms by 0.08% - 0.30%. - or 0.23% on average.
If it was a small error, you could put it down to a tracking error but it seems to be more significant than that.
Also, the error is always negative - the fund never out performs the benchmark. Not just over time but in individual years as well.
Any idea if this an acceptable difference or is it worth querying? Or is this just the way that the industry works...
I had hoped that by choosing a fund with the word 'index' in the title, I would have some hope of a reasonably transparent passively managed fund. Using that figure of 11.53%, it seems like the TER is closer to 1.65% than 1%.
Unfortunately, this is a PRSA with my current employer so I don't think I have any other options...
So - I was interested to know if there is any pattern to how the TER varies. I imagined that no pattern in how the TER varies could be a genuine tracking error.
So I plotted the TER (i.e. the difference between the Irish Life self-created benchmark and the actual performance) for 4 funds for each of the years on the factsheets.
It looks a lot like the TER is lower when the funds perform poorly and increases when they perform well.