All providers now have to offer clean share classes which explicitly state the fees that are paid to the fund manager and the fees that go to the platform or distributor.
In an earlier article, we looked at the cheapest IMA UK Equity Income funds out there. Investors can build a diverse portfolio of these funds for ongoing charges of under 0.8 per cent, we showed.
Here we look at the funds in the currently popular IMA UK All Companies sector with the lowest costs after the reforms.
Schroder Institutional UK Smaller Companies is the cheapest fund available on Trustnet Direct.
This fund, managed by FE Alpha Manager Andy Brough (pictured), is available with ongoing charges of just 0.51 per cent.
Platform fees will vary, but on Trustnet Direct they are just 0.25 per cent.Dimensional UK Smaller Companies is available for just 0.7 per cent ongoing charges through Trustnet Direct.
The fund is passively managed in the so-called “smart beta” style, which means it is tilted towards stocks with characteristics that are believed to outperform. All UK smaller companies stocks are screened to avoid characteristics that have been decided to be undesirable.
FE Trustnet looked in detail at the process in an article last year. The fund has outperformed the sector average over three years, returning 67.99 per cent to the 59.73 per cent average of its peers.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Baillie Gifford British Smaller Companies has ongoing charges of just 0.7 per cent. It also has a superior track record.
The £212m fund is a top-quartile performer over three and 10 year periods, and more than 25 percentage points ahead of its benchmark over five.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
It hired a new manager in January 2013: Andrew Strathdee. However, investors should not be too worried by this because Baillie Gifford sets great store by the consistency of its strategy and approach.
Royal London Smaller Companies and L&G Smaller Companies are both available for under 0.8 per cent plus a platform fee.
Source: FE Analytics
The L&G fund has consistently been a second quartile performer, while the Royal London fund is fourth quartile over five years and third over three.
Luckily for investors, the fees on FE Alpha Manager Giles Hargreave’s Marlborough Special Situations fund are also very low, at just 0.8 per cent.
The fund has one of the best long-term track records in the sector, having returned 311.53 per cent over a decade to the sector’s 191.55 per cent.
Performance of fund vs sector over 10yrs
Source: FE Analytics
The fund underperformed in 2012 and 2013, however, as the smaller companies sector as a whole was re-rated.
It has reached £815m in size, which some investors have suggested could start to limit its ability to buy many small companies.
Marlborough has launched Micro and Nano Cap funds in recent months to capture the bottom end of the market, but the latter has already soft-closed thanks to strong interest.
The Marlborough UK Micro Cap fund is available with ongoing charges of 0.81 per cent.
Investec UK Smaller Companies is another notable fund to look very cheap relative to its peers: the fund has ongoing charges of 0.84 per cent.
The fund recently lost its manager, with FE Alpha Manager Philip Rodrigs defecting to River & Mercantile. Ken Hsia has taken over.
Rodrig’s R&M UK Smaller Companies fund has ongoing charges of 0.99 per cent, putting it above average in the expenses stakes.
Standard Life UK Smaller Companies is also available for the same charges. It has recently reopened to new money. However, it was always available through certain platforms, even if it is officially soft-closed.
