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Disgusting fees, swelling funds and accidental absolute returns: Our best stories of the week

21 November 2014

This week we’ve been looking at the funds which could one day become too big and covered the ongoing debate over asset managers’ fees, as well as finding some bond funds that behave a bit like absolute return strategies.

By Gary Jackson,

News Editor, FE Trustnet

This week has seen another steady grind upwards in equity markets, with both the FTSE 100 and the S&P 500 gaining about 1 per cent over the past five days.

The end of the year is now in sight and discussion has turned to whether stocks will enjoy another ‘Santa rally’. A recent poll of FE Trustnet readers found that most of you - 60 per cent - are expecting equities to rise further from here to the year’s end.

Not that there aren’t risks out there - this week we’ve also seen UKIP win a second seat in the House of Commons, fresh warnings from GMO’s Jeremy Grantham that stocks are in bubble territory and signs of waning success in Japan’s bold Abenomics stimulus programme.

Of course, we’ve also spent the week looking at things at a fund level and you can see some of our favourite stories below. The FE Trustnet team hopes you all have a great weekend.


The top-performing funds which could be in danger of growing too big: Part 1

In the first of a two-part series, FE Trustnet senior reporter Alex Paget quizzed fund pickers about which top performing portfolios they think are currently at a manageable size, but could face capacity constraints if their strong inflows continue.

Although no-one is saying investors should sell these funds, our commentators say a close eye should be kept on their size in case they start to grow too big over the coming years.

Offerings from Miton, M&G and TwentyFour were highlighted as examples of funds that have been popular with investors of late and have the potential for more rapid growth. But in each case, the fund manager explained how they plan to manage capacity issues.

In the final article of the series, three more funds will be looked at by our panel of experts.


Accidental absolute return? The bond funds that have consistently made you money

While every investor wants to see consistent positive returns from their funds, this feat is difficult to achieve in reality - even for funds in the IMA Targeted Absolute Return sector, which are designed to cancel out downside risk.

In this article, we looked at a number of bond portfolios that could be thought of as ‘accidental absolute return’ funds because of their strong track record in making positive returns over the past 10 calendar years.

FE data shows 44 funds across the numerous IMA bond sectors have managed a positive return in at least eight of the last 10 calendar years.

But four funds have managed a positive return in every calendar year: M&G Index Linked Bond, Newton Index Linked Gilt, Schroder Institutional Index Linked Bond and Schroder All Maturities Corporate Bond.


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Source: FE Analytics

Next week, we’ll look at some of the equity funds that have done the same.


Fund managers under fire as experts slam “disgusting” fees

The level of fees charged by a fund is under constant attention by investors and for good reason, as it’s one of the most important drivers of long-term returns.

This week saw fund managers come under fire from two sources over how they charge for their services, with the Financial Services Consumer Panel (FSCP) calling for “radical reform” in how costs are passed on to investors and Cass Business School saying the dominant fee model is not the best for investors.

The FSCP published a discussion paper that said most retail investors do not know what they will actually pay out in fees and suggested asset managers should be required to quote a single and comprehensive annual charge, which would include estimates of variable forward costs such as transaction charges.

Meanwhile, Cass academics argued that symmetric fees, where funds charge a base fee plus a performance fee linked to both over- and underperformance, align the manager’s interest more closely with the investors than the current method where charges are simply a proportion of assets.

“Our results show that the most prevalent fee structure currently in the UK market – a fixed fee as a proportion of AUM – is generally the best structure for the manager and the worst for the investor,” said one of the professors behind the study.


Miton UK Multi Cap Income fund reopens amid “game changer” in UK small caps

Today FE Trustnet revealed that the Gervais Williams (pictured) and Martin Turner’s CF Miton UK Multi Cap Income fund is open to investors once more, after its soft-closure was lifted due to increased capacity for the portfolio.


Miton had placed an initial charge on investments in the fund about a year ago to slow its pace of inflows but decided to remove this at the start of the month after the managers said it had room for another £60m because of a looming “game changer” in the UK small cap market.

“Despite regular dividend growth in the FTSE 350 trending to zero this year, the fund managers Gervais Williams and Martin Turner believe dividend growth in small and micro stocks is going to rise,” Miton told us.

“They are finding plenty of compelling opportunities in income stocks further down the market cap scale and in order to take full advantage of these opportunities they believe that the fund now has capacity for an additional £60m.”

Performance of fund vs sector and index since launch

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Source: FE Analytics

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.