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Coronation cuts fees

Hoping to attract clients from income funds back to multi-asset funds.
Coronation is concerned about retirees. Image: Moneyweb

Active fund manager Coronation Fund Managers will be cutting fees for two of its funds which are focused on retirees. Fees on its Balanced Defensive and Capital Plus funds will be reduced 10 basis points from 0.85% to 0.75% with effect from April 1.

These cuts were accompanied by a 12-month fee holiday for its Strategic Income fund, which would see the fee it charges its customers drop from 0.45% to 0.35%.

Pieter Koekemoer, head of personal investments at Coronation, says the fee cuts were driven by many of its customers switching from its multi-asset funds to income funds.

Essentially, these investors were moving from funds that are largely equity focused, to ones that are more focused on cash assets. Koekemoer says investors are switching because the returns they are getting are below par. 

“JSE returns have been mediocre over the past five years.”

Income fund lustre

This shift in the market put the retirees who were invested in these funds in a difficult position as they were supposed to provide a regular income. The lacklustre performance of the stock market is why many of them switched to income funds, which offered better returns.

Investors realised they were getting cash plus two percentage points or inflation plus three percentage points with a high degree of certainty in the income fund. This was opposed to getting a return of inflation plus one or minus one percentage points – depending on the year in the multi-asset funds.

“They derisked their asset allocation, so they basically sold SA equities.”

Not a good idea

However, Koekemoer says this shift is not a good idea as the sharp reduction in interest rates over the past year meant the returns coming from income funds are set to plummet. 

This can be seen in the return from Coronation’s Money Market Fund, which was 5.1% last year and has now shrunk to 0.3% for the year to date.

“The reason for the fee cut is because we are very concerned about how retirees have been behaving in their asset allocation decisions over the last few years,” says Koekemoer.

“We are trying to make it easier for them to do the right thing.”

Looking at the performance of the Balanced Defensive fund – it provided a return of 7.9% last year and is up 2.4% year to date. There is a similar story with the Capital Plus fund, which saw a return of 8.9% and is up 2.7% year to date.

A small carrot

Koekemoer hopes the cut in fees will act as a small incentive in attracting clients back to the multi-asset funds.

Although the returns coming from the multi-asset funds have been subpar over the past few years, they are still better suited to the needs of retirees, as they are optimised for paying a regular income but also have enough growth asset exposure to protect against inflation.

Koekemoer says the fee cut also ties into the philosophical debate about how much customers should be charged.

There used to be an argument about 15 years ago that premium fees should be charged because sophisticated risk management techniques were used on niche asset classes, such as listed property and convertible bonds.

Then about seven years ago that argument fell away, and the argument was that the same fee should be charged regardless of all these different asset classes.

But management techniques previously considered quite exotic have now become mainstream, which has led Coronation to think these fees can no longer be justified.

The savings, however, are small as it works out to about R1 for every R1 000 invested.

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COMMENTS   22

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Shame man, R1 per R1000 is not much to the retirees but it is R1 less per R8 for the fun damagers in fees taken from other people’s money.

Perhaps they could put their money where their mouths are and only take fees when they beat inflation and passive indices?

Of course that would mean actually working for their fees and bonuses.

That could be a tough concept to swallow.

A tough concept to follow when applied to your own business and industry!!

Looks like they have worked hard and should earn those bonuses – beaten the passives handsomely across all meaningful measurement periods.

Careful of blanket statements.

Beat inflation and passive investments across all funds? Or which funds?

Then the obvious question is, how would you know which of the several funds to choose in advance to get those returns as opposed to the average return across all their funds if you hadn’t landed your dart on the right section?

If they are playing with stocks in the US across selected sectors then their benchmark would need to be weighted accordingly against the indices for those respective sectors.

They certainly haven’t beaten my returns over 10 years with any of their funds.

Coronation on communication are tops, 2nd probably to Allan Gray

The Top20 has not been as upbeat as prior to 2020

Their Global USD Equity has done well, particularly in the last 4 years

Everyone “yaddles“ about Sygnia but the communication from them is below par but leaps & bounds ahead online broker EE…which is frustratingly dismal

Nice to see you continue to shamelessly promote your fake returns. Let’s have some details bud?

upbeat as prior to 2020..correction = 2012

Smells like paid content..

You clearly still have your sense of smell.

Right before a crash they want to move retirement money in income funds into equities?

If you panicked and moved to cash during the start of the pandemic a year ago and did not even bother thinking longer term, you have probably lost out on one of the best market recoveries the past decade. Now you still want to sit in cash earning negative real returns? Silly decisions like this have cost you dearly and are poor, permanent wealth destructive decisions.

Nobody said we did that. That’s a wild assumption. Sounds like this happened to you and you made a costly mistake.. Did you also stay in during the crash?
Better to be in a low performing asset class for a while before a crash, than to lose 40% of your base in a crash. The old buy and hold philosophy does not hold water. We pulled out of equities by end Jan last year. Well, guess I am just a pragmatist. Inflation is much more than the quoted figure by the way. They play with the indices. It’s easy to be a master of hindsight.

What a “hen” of a comment by the head (of personal investments).

Simply playing around with fee schedules to hold onto assets. A more honest approach is to cap/close/redeem funds due to market opportunities (if they had any idea).

Most businesses I know change and adapt pricing all the time due to market conditions. Why shouldn’t fund managers? Koekemoer is highly respected in the industry for a reason.

Koekemoer is a salesman tied to a product house. It is in his best interests to shovel his product down the throats of potential investors. Changing pricing is to achieve the outcome that Coronation is seeking.

BearMarketBoy My guess is that the business you are involved in seeks new clients and that you and your staff are involved in some aspect of marketing i.e. you also shovel your product down the throats of potential clients. Koekemoer, like anyone in his position, will highlight the pros of investing with Coronation. If this does not apply to your business how do you attract new clients?

No skill needed to manage funds mainly invested in bonds and cash .Why charging fees anyway.

All of the above aside. Coronation golf days are the best.

They treat you like royalty. Best food, finest wines, amazing prizes.

Well worth the patronage.

End of comments.

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