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.