Is 0.5 under the limit?

It ishard to fault BT Funds Management over its recent decision to rebate back to investors 0.5 per cent of their management fee on the BT Australian Share Fund for a six month period.

As the van Eyk Research group put it last week, “Westpac/BT are to be applauded for considering investors (a rare event) who have suffered a series of new owners, style changes and generally poor performance in the BT Australian equity portfolios”.

The van Eyk group itself deserves some applause given that the fee reduction came about as a result of its prompting.

While most other research groups simply reacted to the changes at BT since its acquisition by Westpac, van Eyk was able to take the time to negotiate what can only be described as a positive for BT’s long suffering investors.

That BT was willing to take on van Eyk’s suggestion will only reinforce the view of van Eyk as the premier research house in the market at a time when many are commenting on the dwindling ranks of credible researchers.

The question now for BT is whether the fee reduction will be enough to appease its investors and stem the flow of funds out of the group.

BT has been losing some $240 million per month out of its Australian equity portfolios since Westpac’s acquisition of the group in August — a sizeable amount for any fund manager, but particularly for one that has been in outflow for some time on the back of relatively poor investment returns.

BT’s ownership change was no doubt the last straw for many investors. And who can blame them?

Analysis conducted by van Eyk shows that no BT Australian equities investor who did not reinvest their distributions has made a capital gain since 1993. Even with distributions reinvested, investors are in capital loss since 1998.

Only time will tell if these same investors think a 0.5 per cent fee rebate over a six month period is reason enough to stick with BT.

What is clear right now is that the fee reduction will cost BT’s new parent, Westpac, somewhere in the order of $3 million.

That is not a pittance, but it does pale when compared to the tens of millions of dollars Westpac is rumoured to have paid out to just a handful of Sagitta Rothschild executives who left the group in the wake of Westpac’s purchase of BT.

If that amount were given to the thousands of investors in the BT Australian Share Fund, it would make up a significant portion of BT’s underperformance over the past 18 months. Food for thought at the very least.