I’m comparing two fee structures on a product. A) is 5% upfront B) is 3% up front and a .50% trailer based on fund market value (Say SP500 exposure) Since this is a third party product sold by Acme. Co…Acme collects a 1% mgmt. fee each year, which lowers my .50% trailer. I’d like to take fee structure A) and replicate the market exposure I would’ve gotten with structure B. What’s the best way to do this? Would I simply buy SP500 in the amount of the trailer I would’ve received had I chose structure B? If I choose to take exposure in the form of a derivative then I’ll have to constantly keep my DVBP equal to what it would’ve been in structure B correct? Some of the downsides I can see are: -inability to properly replicate exposure -you are assuming a cash outflow on your BS if the market loses value whereas with structure B you’d still show a cash flow gain (you’d just have a smaller trailer payment) I’m not sure my thinking is right here…any help or input would be greatly appreciated. Thanks
You would make more by taking structure A and using 20% of your fee to replicate the S&P. You would be left with 4.5% upfront and a 0.50% trailer neglecting the management fee.