The study found funds from Henderson and Gartmore were among the most expensive in the country in Total Expense Ratio (TER) terms, despite each having more than £100m under management, and criticism of charges in the past.
Table highlighting ten of the highest TERs
| Name |
Fund size (m) £ |
Initial charge % |
Annual charge % |
TER |
| Henderson - Multi Manager Active |
399.1 |
5 |
1.5 |
3.24 |
| Henderson Multi Manager |
125.8 |
5 |
1.5 |
3.13 |
| Marlborough Balanced |
127.3 |
5.25 |
1.5 |
3.01 |
| Thames River Distribution |
242.2 | 5 | 1.5 |
2.69 |
| Jupiter Merlin Growth Portfolio |
1138.3 | 5.25 |
1.5 |
2.66 |
| Henderson Multi Manager Balanced |
183.6 | 5 |
1 | 2.65 |
| Gartmore Multi Manager Balanced |
278 | 5 | 1.5 | 2.63 |
| Henderson Global Innovation |
193.2 | 4.25 | 1.5 | 2.62 |
| Henderson Multi Manager Income & Growth |
438.3 | 5.25 | 1.5 | 2.59 |
| Baring - Global Agriculture |
113.7 | 5 | 1.5 | 2.53 |
Larger funds tend to keep costs down thanks to economies of scale, and the average total expense ratio (TER) of a fund is 1.37, according to Financial Express data, but the top ten most expensive funds with more than £100m under management charge between 3.24 (Henderson Multi Manager Active) and 2.59 (Baring Global Agriculture).
TERs are a useful way to compare the cost of funds as they cover both annual management fees (AMC), plus any extra charges incurred, such as audit costs. TERs do not include the initial charge investors pay, nor the dealing costs incurred when holdings are bought or sold.
Over three years the Henderson Multi Manager Active fund, the most expensive fund of this size in the UK, underperformed the benchmark IMA Active managed sector by six per cent and, according to Financial Express data, took on more risk than the sector over the same period.
Performance of the Henderson Multi Manager Active fund vs sector over 3-yrs
Source: Financial Express Analytics
The Henderson Multi Manager Managed fund, meanwhile, underperformed the IMA Balanced Managed sector over the three year period, and again did so at greater risk. The fund, which is run by Bill McQuaker, has the second highest TER in the UK among funds of this size, but is in the fourth quartile for performance over three years.
Performance of Henderson MM Managed vs IMA Balanced sector over 3-yrs
Source: Financial Express Analytics
Henderson's Global Innovation and Multi Manager Income & Growth funds, which are also in the top ten most expensive list, outperformed their respective sectors over the three year time frame, albeit it at a far higher risk.
A spokesperson for Henderson defended the funds' short term records, adding: “This is more an issue of performance than costs. From an investment point of view, when a fund underperforms, it is understandable that fund charges are called into question. However, the funds mentioned are run by experienced managers, who have good long-term track records and through in depth fund selection research and active asset allocation, have returned top quartile performance over the last year.”
Baring Global Agriculture is another high charging fund. Its TER is 2.53, however, it has outperformed its MSCI World Index benchmark since its launch in January 2009.
Performance of Baring Global Agriculture fund vs MSCI World over 2-yrs
Source: Financial Express Analytics
The group was not available for comment on the high TER, but did draw attention to its high performance. It said: "When measured against a small group of similar funds investing in agricultural equities, the fund outperforms."
Not all of the top ten chargers are poor performers; Jupiter Merlin Growth Portfolio returned 10.8 per cent to investors over a three year period, while the benchmark IMA Active Managed sector lost two per cent.
John Chatfeild-Roberts, chief investment officer at Jupiter said: "Value for money is the most important factor consumers should be focused on, rather than price per se in my view. If a fund manager is likely to produce outperformance over the medium term after charges it is worth paying more for him or her."
He hit out at 'index-hugging' funds, however, which are set up only to deviate by small amounts from whichever benchmark they are using, while charging full active management fees. Graham Toone, head of investment research at AFH, went further. He said the whole investment industry was a 'closed shop', and called for more transparency.
"We prefer funds to charge one per cent. The whole industry is bad value. In the old days when there was high growth a charge of 2 per cent didn't seem unreasonable, but the low returns investors get now make those charges look less reasonable," he said.