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I live in New Zealand and I was looking at investing in one or more of the ETF's provided on the NZX (e.g SmartShares).

But the management fees for many of their offered ETF's are greater than 0.5%. And some of their funds are simply ways to access other funds which sometimes only charge as low as 0.04% when invested in directly.

Managed funds can come with 1% fees which is higher, but not by a whole lot considering one of the main arguments for index tracking funds is the low fees.

Why would somebody want to invest in these index tracking funds that charge this much in fees?

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I also live in New Zealand. While i can't speak for the advantages and disadvantages of investing in a high fee etf, I do know why smartshares has such high fees. Unfortunately, they seem to have a monopoly on the New Zealand market, being that they are the only provider of Etfs and are owned by NZX. There used to be another provider by the name of Superlife, but they have since been bought out by NZX and consolidated.

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People invest in high-fee funds because they believe the returns will be sufficiently higher to cover the additional cost.

They are usually wrong.

Studies suggest that low fee funds do produce greater net growth/income. Which is one reason that even the pros now admit that for most folks low fee index funds are the way to go.

(Note that before the introduction of computer-managed index funds, all funds were being marketed on the basis of the presumed expertise of their human managers, and higher fees supposedly paid for a more skilled management team and the resources to support them. So the high fee funds are arguably a legacy of an older way of doing things.)

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    So the real difference was in the beverage the management of said funds was drinking... eye-opening. XD
    – Mindwin Remember Monica
    Commented May 13, 2016 at 20:05
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    Typo, of course, tea for team. Thanks for catching it. Though in some sense it's correct; people were paying champagne prices....
    – keshlam
    Commented May 13, 2016 at 20:07
  • Correct me if I'm wrong but the studies are generally based around comparing managed funds with low fee index funds. I'm asking about index funds that have high fees in comparison to managed funds which have marginally higher fees. In USA the fees are generally about 0.12% right?
    – Adrian773
    Commented May 15, 2016 at 22:27

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