Under the Spotlight: How Much Does it Cost to Trade Equities?
The ‘bread and butter’ investment activity of any large superannuation fund is the day-to-day trading that occurs within its equity portfolios. Ask a typical fund about its trading and the fund’s response will capture attributes like its active or passive investment philosophy, broad turnover attributes and (unless insourced) the names and styles of managers who were each selected by the fund to independently manage a particular equity portfolio ‘sleeve’. What is less likely to be shared is a real sense of how efficient this day-to-day trading is and how much it is costing the fund (or, rather, the fund members). Trading costs are not typically measured and reported separately, but instead, are embedded in net performance figures disclosed to the fund and its members. Most funds are given little information about how efficient their equity managers’ day-to-day trading is and lack the means to identify inefficient execution practices which may be costly. This black box approach surely cannot last at a time when two of the (related) trends reshaping the superannuation industry are transparency and implementation efficiency.