One of the key considerations with income investing is how much of the fees is are eating into your invested capital and dividends. Income+ provide retail investors with access to institutional level funds at a fraction of the cost. But what does this mean and can it actually deliver on its promise?
First, let’s start with understanding the fees associated with Income+.
Fund level fee
Fund level fee is a fee charged by an asset manager for managing your money. In our case, Income+ portfolios consist of primarily institutional share class funds from PIMCO. Average fund level fees is at around 0.65 – 0.70%.
This sets the Income+ portfolios apart from most of the other retail fixed income offerings in the market as the fund level fees of these institutional share-class funds are at least 60% lower than their retail equivalents (average fund level fees of retail share class fixed income funds are 1.5%+).
Trailer fees are commissions paid to financial advisors or intermediaries who sell funds to investors as an ‘introducer’. When Syfe invests in any retail fund, we rebate this trailer fee back to our investors. As opposed to going through a broker in most cases they would pocket the fees.
All of our managed portfolios are subject to a management fee that varies based on tier, ranging from 0.35% to 0.65% per annum. This is an additional fee incurred compared to doing it yourself (DIY). Although if you do choose the DIY approach, remember there’s sales charges to factor in for a fair comparison.
Syfe fees are charged on the value of the total assets under management which is equivalent to the net asset value (NAV) of your portfolio. There is no additional charge for payouts to banks.
After understanding the fees, we now can compare with other options that are available to you in the market.
Could I be saving on management fees, via funds DIY?
If you’re looking to replicate a similar portfolio to Income+ via a broker to save on fees, you can, but be aware of 1) the difference in retail class fund level fee and 2) total costs associated.
We’ve built this illustration to break down fees by line item. Do note that different brokers offer different rates and fee structures to the example of what we’ve shown.
In our example, Income+ portfolios even with added Syfe management fees, would still save you up to 60% per annum compared to DIY with retail funds. If you were to directly invest in PIMCO’s funds as a retail investor via your broker, your fund level fee would almost double.
Check out the other pros and cons of Income+ vs DIY options in our previous article with other consideration factors in place.
What can I expect in returns, netting all fees?
At the time of writing this article, the monthly dividend payout of Income+ portfolios range between 4.0% to 6.0% per annum. Besides dividend payouts, there’s also an element of capital appreciation or potential price returns that contributes to total return represented by the current yield-to-maturity (YTM) of the portfolios. They YTM represents the annualised total returns from the portfolio if all the underlying bonds are held to maturity. The current YTM of the two portfolios gross of fees range from 6.7% to 8.4%.
As you can see from above, the total fees for the Preserve and Enhance portfolios are 1.08% and 1.07% respectively. The total fees includes the fund level fees (0.68% for Preserve and 0.67% for Enhance) and Syfe’s management fees (0.40% for gold tier clients). The total fees impact the potential price return (capital appreciation) but not dividend payout. The YTM/Yields of the two portfolios, net of all fees associated, come out to be 5.63% for Preserve and 7.33% for Enhance. Given the low risk nature of the two income portfolios, these net yields look fairly attractive vs the risk inherent in these portfolios.
Note that the total net realised returns of the two portfolios may or may not follow the net yields of the two portfolios and are subject to market risks.
Besides the advantage over fees, by investing in our Income+ portfolios, you gain easy access to diversification, monthly payouts transferred directly to your bank account as well as periodic portfolio rebalancing. Syfe provides a convenient, cost-efficient method to access fixed income assets with ease with Income+.
Create an Income+ portfolio now and grow your money to its fullest potential with Syfe.