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The large UK funds charging you more than 1%

27 April 2016

In the final article of our charges special, FE Trustnet identify the UK funds that have assets of more than £1bn but have ongoing charges that are in excess of 1 per cent.

By Gary Jackson,

Editor, FE Trustnet

Standard Life Investments UK Equity Income Unconstrained, Trojan Income and Halifax UK Growth are examples of large funds that are levying ongoing charges of more than 1 per cent, according to FE Trustnet research, although the outcomes experienced by investors can be widely different depending on the product they have chosen.

As part of our charges day special and after highlighting the best performing funds that have lower fees than most of their peers, we thought we would take a closer look at the popular funds that have higher than average ongoing charges figures (OCFs). Costs are one of the most powerful determinants of long-term returns although – as the article below will show – this doesn’t necessarily mean that higher fees mean poor total returns.

In order to research this article, we looked through all the IA UK All Companies and IA UK Equity Income funds to identify those that have assets under management of more than £1bn and OCFs over 1 per cent; 59 per cent of our readers say they would not pay more than this for a UK active fund.

We’ve also contacted the fund groups to ask them to comment on their OCF and used them in the following article. Given the number of funds mentioned in the article, we have refrained from pulling these replies apart and have left them for you to judge the merit of them, but if there’s any you’d like looking into in more detail please feel free to mention in the comments section below.

When it comes to the IA UK All Companies sector – which is the largest peer group in the Investment Association universe – the average OCF is 0.91 per cent but there are 69 funds out of 268 that have ongoing charges of more than 1 per cent. Nine of these are running more than £1bn.

 

Source: FE Analytics

One immediate thing to jump out is that three index trackers – seen by many to be a low-cost investment solution – have made it onto the list.

Considering that some UK index trackers have fees as low as 0.06 per cent, a passive fund charging more than 1 per cent could appear to be expensive but Virgin Money argues that its offering looks competitive when features such as minimum investments of as little as £1 and no platform fees are considered.

“Virgin Money is committed to a clear and transparent approach to charging and has a single charge on its investment tracker funds. It is important that customers look at charges as a whole when comparing investment providers. Not all companies’ charges are as transparent as ours, and not all funds welcome the mainstream, mass market investor in the way that we do,” a spokesperson for the group said.

“Many providers promote what may seem to be low charges, but then have a range of other fees including initial charges, platform charges and exit fees. Some even impose restrictions such as a high minimum investment which excludes many investors. We choose not to play this game, preferring to be simple, straightforward and transparent. Virgin Money is proud to be able to give customers access to the FTSE All Share Index at any level of investment, and at a fair charge when compared with our competitors.”

However, the two funds on our list with the highest OCFs are active funds. Scottish Widows UK Growth and Halifax UK Growth are both part of Lloyds Banking Group and are managed by the same quantitative investment team. Both funds are only available direct from Scottish Widows and Halifax.


 

Performance of funds vs sector and index over 5yrs

 

Source: FE Analytics

Both funds are currently in the IA UK All Companies sector’s bottom quartile over three, five and 10 years, with the more expensive Scottish Widows UK Growth being the worst performer of the two and return 20 percentage points less than its average peer over the past five years.

We previously contacted Lloyds about the about the lacklustre returns and the high fees on the £4.6bn Halifax UK Growth funds and a spokesperson told us: “The fund manager of the Halifax UK Growth fund has consistently beaten the fund’s FTSE All Share benchmark index on a gross of charges basis.”

“The fund is untypical in having a bundled annual management charge that recovers all cost in setting up and running the plan, including the cost of initial advice.”

However, not all the funds mentioned on the list have underperformed – and can be seen as some of the better offerings in the peer group.

The £1bn Standard Life Investments UK Equity Unconstrained fund is currently in the sector’s top quartile over three, five and 10 years while the £1.6bn Jupiter UK Growth fund is first quartile over three and five years and second quartile over the past decade.

Standard Life Investments, whose Standard Life Investments UK Equity Income Unconstrained is another large fund with fees over 1 per cent, maintains that the higher fees that come with this type of strategy represents value for money for the end investor.

Jacqueline Lowe, head of UK wholesale, said: “Charges are important and we offer a broad range of funds with different price points. We also conduct regular reviews across our whole fund suite to ensure that our charging structure remains consistent, competitive within the market and also offers value for money to our investors.  As active managers, the best way to serve our customers is to maintain a key focus on performance – delivering value is ultimately what is important.”

“Over the longer term, both these Unconstrained funds have generated industry leading returns on both an absolute and a risk-adjusted basis. This long-term performance has been driven by the strength of insights we are able to generate through our Focus on Change investment philosophy – incorporating advanced risk management techniques and portfolio construction. We remain fully committed to delivering value for all our investors together with exceptional long-term investment returns”.


 

Over in the IA UK Equity Income sector (where the average OCF is also 0.91 per cent) there are four funds meet the criteria of having assets under management in excess of £1bn and an OCF of more than 1 per cent.

 

Source: FE Analytics

Again, it’s a fund from Lloyds Banking Group – Halifax UK Equity Income – that has the highest OCF at 1.53 per cent. It is in the sector’s bottom quartile over one, three, five and 10 years. Lloyds’ quantitative investment and global equity teams have only managed the fund since the start of 2013 but it is still lagging the index and sector since then.

But we have a similar story to the IA UK All Companies sector, as two of the funds on the list have very strong track records. Standard Life Investments UK Equity Income Unconstrained and Trojan Income are currently sitting in the IA UK Equity Income sector’s top quartile over three and five years, as well as outperforming the FTSE All Share by a wide margin over both time frames.

Performance of funds vs sector and index over 5yrs

 

Source: FE Analytics

Both of these funds are highly respected by investment analysts as they have places on the FE Invest Approved List and appear in Square Mile’s Academy of Funds. Square Mile gives Trojan Income an ‘AA’ rating while Standard Life Investments UK Equity Income Unconstrained is ‘A’ rated.

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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.