As we have learnt from FX Week today, there is a view held by some in the FX community that adding costs for clients through spread is just fine. We disagree.
Aside from being questionable from a MiFID2 perspective, adding just USD 1 per million means knocking of 4bps of performance over a year on an average portfolio. That’s absolutely crazy money, and means that a manager with (just) a billion dollars under management is paying USD 400,000 for TCA. Why on earth would you do that?
The impact of FX costs on performance:
|MSCI WORLD Standard USD Return||Return at USD 1/MM Cost||Return at USD 250/mm Cost||Return at USD 500/mm Cost||Return at USD 1,000/mm Cost|
|Total Return %||33.85%||33.21%||32.26%||30.69%||27.61%|
|Total Lost Value %||0.00%||1.88%||4.69%||9.33%||18.44%|
|Annualised RoR %||7.45%||7.41%||7.35%||7.24%||7.01%|
|Annual Cost (BPs)||0.00||4.00||10.53||21.45||44.60|
*All data from NCFX and MSCI. Date range 02/14 to present.