The cost of active funds is rarely out of the headlines, and it’s fair to say that the publicity has been far from positive. The latest survey of FE Trustnet readers exposes just how strongly professional investors feel about the price of their fund.
As criticism for the active fund management industry continues to dominate headlines, we are also seeing a boom in the passives market wich puts further pressure on managers to prove they are worth the higher fees they are charging.
And as if all the criticism and competition is not enough - a recent survey of professional investors on FE Trustnet found that over a fifth would not pay more than 0.75 per cent in ongoing charges (OCF) for an active UK equity fund.
FE Trustnet polled 2,637 advisers and investors, to find that 22 per cent would not pay more than 0.75 per cent in OCF, 37 per cent would not pay more than 1 per cent, and 21 per cent wouldn’t pay more than 1.25 per cent.
What does this mean?
The average active fund OCF is 0.9975 per cent, according to FE Analytics data. This means that investors are filtering out some 90 per cent of the active funds available in the market.
Disregarding funds because they charge more than 0.75 per cent would mean that investors are also immediately crossing out well-known funds such as Old Mutual UK Dynamic Equity, Trojan Income and Standard Life Investments UK Equity Income Unconstrained.
Best performing UK funds over 3 years
Source: FE Analytics as of 06/06/2016
The above table shows the best performing UK equity funds over three years. What we can see is that all of the top ten best performing funds charge over 0.75 per cent.
So by ignoring funds with an OCF of over 0.75 per cent, investors would overlook the best performing funds across the UK All Companies, UK Equity Income and UK Smaller Companies sectors. CF - Miton UK Smaller Companies, AXA Framlington UK Smaller companies and MFM Slater growth are just a few best performing funds that would be overlooked.
While the FE Trustnet study highlights the false economy of basing an investment vehicle purely on cost, managers need to be reminded that investors are unlikely to change their mindset any time soon and therefore - it is those fund groups who can compete and keep their charges down which are most likely to remain competitive.