Look through the comments section on FE Trustnet and it is clear that charges are vitally important to many of our readers.
That is very understandable, of course. Not only do higher fees mean less of an investor’s assets are actually in the market but it also means the manager is already at a disadvantage when trying to beat the market if they are battling against a large ongoing charges figure (OCF).
On top of that, FE data shows the cheapest UK funds have outperformed their most expensive rivals over the longer term – as a recent FE Trustnet article highlighted.
Performance of composite portfolios versus index over 5yrs
Source: FE Analytics
However, while those points are all very valid and individual preferences apply, it is also true that cost alone shouldn’t be the be all and end all to an investment decision. The sturdiness of the investment process and the quality of the management team are also key.
Even the graph above shows that the most expensive funds have still beaten the FTSE All Share over the past 10 years.
Therefore, while many investors may have been (and may still be) put off by certain UK funds due to the costs involved, some have shown an ability to consistently outperform despite their high OCFs. While the past is no guide to the future, here we look at three IA UK All Companies funds that have so far managed to justify their higher fees.
All the figures below also include the eroding effect of higher charges, therefore illustrating the outcomes of the average investor.
Majedie UK Focus (OCF: 1.53%)
One of the best examples is the five crown-rated Majedie UK Focus fund as it has an OCF which is 51 basis points higher than the IA UK All Companies sector average.
The £654m fund, which is managed co-managed by Chris Field, James de Uphaugh, Matthew Smith and FE Alpha Manager Chris Reid, has been one of the most consistent outperformers in the sector.
Each manager looks after 25 per cent of the portfolio’s assets given the portfolio exposure to their area of expertise – ranging from large, medium, small and income-producing companies.
According to FE Analytics, Majedie UK Focus beaten both the sector average and its FTSE All Share benchmark in nine out of the last 10 calendar years and is outperforming once again in 2015 – a feat unmatched by any fund in the 270-plus strong peer group.
This means the fund sits comfortably in the top decile over 10 years with returns of 198.87 per cent, beating the FTSE All Share by 110 percentage points in the process.
Performance of fund versus sector and index over 10yrs
Source: FE Analytics
Given the consistent nature of its outperformance, it is no surprise the fund has been top decile for its risk-adjusted returns (as measured by its Sharpe ratio) and maximum drawdown over that time as well.
FE Trustnet has written about Majedie UK Focus on a number of occasions and even looked into why the fund is so expensive, especially when the less concentrated Majedie UK Equity fund has an OCF of just 0.77 per cent.
The group’s reasons behind the higher charges include the fact that it is a portfolio of ‘best ideas’ and therefore should naturally be more expensive and that there is a scarcity of capacity within the strategy.
Standard Life Investments UK Equity Unconstrained (OCF: 1.15%)
While by no means as expensive as Majedie UK Focus, the top-performing Standard Life Investments UK Equity Unconstrained fund still has an OCF which is considerably higher than the sector average of 1.02 per cent.
Despite that, it has proven to be one of the most popular vehicles in the very competitive peer group over recent years.
The five crown-rated fund was launched by Wes McCoy in September and was taken over by the now Artemis-bound Ed Legget in 2008 up until his departure earlier year. The portfolio is now once again helmed by McCoy.
Both McCoy, who came up with the strategy, and Legget before him follow a value-driven unconstrained approach to the UK market, which has paid off over the longer term.
FE data shows the fund been the best performing portfolio in the sector since its launch with returns of 346 per cent. The FTSE All Share, on the other hand, has gained 74.24 per cent over that time.
Performance of fund versus sector and index since launch
Source: FE Analytics
The fund is also top quartile over one month, three months, six months, one year, three years and five years.
The fund has tended to take full advantage of strongly rising markets, but fallen further than its average peer during periods of market stress (such as its bottom quartile losses in 2008 and 2011).
However, due to the £1.3bn fund’s 54 per cent and 10 per cent weighting to the FTSE 250 and FTSE Small Cap indices, respectively, it is outperforming again so far in 2015 despite the large-cap driven correction which has rocked markets.
ConBrio Sanford Deland UK Buffettology General (OCF: 2.13%)
Keith Ashworth-Lord’s £19.4m ConBrio Sanford Deland UK Buffettology General fund is one of the most expensive in the sector with its OCF of 2.13 per cent, though investors can buy the fund for an OCF of 1.4 per cent on certain platforms. 
Nevertheless, high charges are something Ashworth-Lord (pictured) has had to consistently fight against since his fund’s launch in March 2011 – as he told FE Trustnet in an article last year.
“To be brutally honest, the initial fundraising was a disaster. The AUM was still only £2m after two years and I thought it would be around £15m straight away,” he said.
“I think most people will only invest in a fund when it has a three-year track record, but we were very slow at building up AUM. That meant that the TER [total expense ratio], or OCF, was horrendous for the first year as I was battling against charges of around 8 per cent.”
“The reason why they were so high was because our third party providers all have minimum hurdle fees, so as we saw more inflows the charges have come down. However, it was a real headwind we had to deal with so I am really pleased that the fund performed like it did.”
As the manager points out, his fund (which has exclusive rights to use the Buffett name and follow the legendary investor’s strategy within the UK market) has performed very well since launch.
According to FE Analytics, it has been a top decile performer over that time with gains of 87.89 per cent, meaning it has more than tripled the returns of the FTSE All Share.
Performance of fund versus sector and index since launch
Source: FE Analytics
The fund has also beaten the sector and index in every full calendar year since launch and is outperforming year-to-date with gains of 16.09 per cent.
Like Buffett, Ashworth-Lord only invests in companies with a comprehensible business model, an enduring franchise with pricing power, high returns on capital employed, strong free cash flow, strong balance sheets and no undue reliance on acquisition-led growth.
This has led him to a portfolio which is primarily biased towards mid and small-caps, which goes a long way to explain its double-digit gains so far in 2015.
