Keeping charges low is particularly important for those with smaller pots who hope the power of compounding will make them wealthy in the long term: cutting the charges on your investment can have a huge effect over the long run.
Here we look at the funds in the most popular mixed investment sector which have the lowest charges under the clean share class regime. Investors will have to pay a platform fee on top of the fee to the fund house of 0.25 to 0.5 per cent depending on the provider.
The cheapest fund in the sector is the L&G Multi Index 4 fund, which has ongoing charges of just 0.31 per cent. However, this was only launched in August last year, so there is little track record to judge it by.
It is a fettered fund of funds, meaning that it invests in a number of products run by L&G. In this case the investments are all passive, meaning that it is essentially a fund of trackers.
Passively managed funds cost less to run – there are no fund managers to pay for a start – so this helps keep the cost down. Given its short history it is unlikely to be top of most investors’ buy lists, however.
The Close Tactical Select Passive Conservative fund is almost as cheap at 0.53 per cent. It is another fund with a relatively short track record, however, having been launched only in October 2011.
Our data shows that over that time it has made 16.74 per cent, less than the sector average of 20.67 per cent.
Performance of fund versus sector since October 2011
Source: FE Analytics
The £4.3m fund does have a conservative approach, however, and also uses trackers which reduces to zero its ability to add alpha.
The fund has just 39 per cent in bonds and 7 per cent in cash, so it is reasonably aggressively positioned, but entirely in passives.
Standard Life Dynamic Distribution is the first active fund on our list, and it is also one of the top-performing funds in the sector.
It charges just 0.61 per cent and is the fourth-best portfolio out of 96 over a five year period with returns of 81.95 per cent to the 45.85 per cent of the sector.
Over three years it has the second-best record in the sector with gains of 31.76 per cent to the 15.58 per cent of the average fund in the sector.
Performance of fund versus sector over 3yrs
Source: FE Analytics
The £222m fund, managed by Jacqueline Kerr, is also the top-performing in the sector over the past 12 months and is currently yielding 3.62 per cent.
It is another fettered fund of funds which means it has prospered from the excellent performance of a number of the underlying Standard Life funds: Standard Life UK Equity Income Unconstrained and Standard Life UK Equity Unconstrained have both been standout performers in recent years.
The pair make up a combined 18 per cent of the fund. The largest holding, Standard Life UK Equity High Income, makes up a massive 28.6 per cent.
The portfolio also gives investors access to Standard Life GARS as well as property and bond funds.
Source: Trustnet Direct
The £1.6bn Henderson Cautious Managed fund, managed by Chris Burvill and FE Alpha Managers Jenna Barnard and John Patullo, is also among the cheapest funds in the sector with ongoing charges of just 0.74 per cent.
Like the Standard Life portfolio it is one of the standout funds in the sector, producing the fifth best returns over 10 years, 15th best over five years and ninth best over three.
Performance of fund versus sector over 10yrs
Source: FE Analytics
Yielding 3.3 per cent, the fund has 24 per cent in bonds, 15.75 per cent in cash and a further 8.6 per cent in index-linked fixed interest.
The bulk of the portfolio is in equities, with high weighting to equity income staple sectors such as oil and gas, telecoms and tobacco.
The fund is a member of the FE Select 100 list of the country’s best funds.
The £120m Aviva Distribution, managed by Chris Murphy and James Vokins, isn’t on the list but it does have five FE crowns, reflecting an excellent few years which have seen it record top quartile numbers over three and five year periods. It charges just 0.74 per cent.
L&G Distribution has produced top quartile returns over one, three and five years periods and charges just 0.67 per cent.