On average, the total expense ratio (TER) of CF funds in the UK All Companies sector is 0.31 per cent higher than the sector average, for example. The average TER of CF Europe excluding UK funds is 0.14 per cent higher, while the difference in IMA Balanced Managed is 0.1 per cent.
Cost of CF funds compared to relevant sector average
| Name |
TER of CF funds (%) |
TER of sector average (%) |
Difference (%) |
| UK All Companies |
1.76 |
1.45 |
0.31 |
| UK Equity Income |
1.77 |
1.68 |
0.09 |
| Cautious Managed |
1.91 |
1.81 |
0.10 |
| Balanced Managed |
1.86 |
1.76 |
0.10 |
| Europe ex UK |
1.58 |
1.72 |
0.14 |
Source: FE Analytics
While these cost-margins are ostensibly small, the cumulative effect that a higher TER has on returns is substantial in the longer term.
Capita Financial provides bespoke administration services to fund management groups that cannot justify coping with regulatory burdens in-house. The investment houses that use CF tend to run funds with a relatively small AUM (assets under management).
According to FE Trustnet, CF currently manages 135 funds in the open-ended unit trust and OEIC universe.
Managing director of Nexus Independent Financial Advisers Kerry Nelson says she is wary of high-cost CF funds, since they hinder their own chances of outperforming.
“These funds have to counter these high charges by delivering a big outperformance, which is very difficult for a small fund,” said Nelson. “For them to be competitive, they need to bring down the TER, but at the same time they need to market the fund, and put all their efforts into maximising returns.”
“They’re in a really difficult situation, which is why it’s so difficult for small funds to get off the ground.”
That said, Nelson says she wouldn’t automatically dismiss a high-cost CF fund.
“It would either need a very good record, or be run by a manager with a very good record,” she said. “I would never limit myself to a fund with a certain TER.”
She lists FE Alpha Manager Martin Gray’s CF Miton Strategic Portfolio as a fund that is well worth investing in. The vehicle has a TER of 2.08 per cent, though it is a consistently top-quartile performer in the Balanced Managed sector.
Walker Crips fund manager Jan Luthman thinks IFAs and investors should look at cost-adjusted returns before they look at costs.
The FE Alpha Manager’s CF UK and CF Walker Crips UK Growth funds have both outperformed their UK All Companies sector average and FTSE All Share benchmark over a one, three and five year period, with less volatility.
Performance of fund versus sector and index
Source: FE Analytics
“There are only five of us in the team at Walker Crips, so we are reluctant to take the administration process in house. We want to focus on what we do best – which is being active managers,” said Luthman.
“Of course higher fees mean there is less left in the pool, but you have to pay for a manager who is trying to beat the benchmark.”
“Our CF UK fund only charges investors £500 a month – though this is under review. The rest of the costs come from Capita. Unlike most funds we also don’t charge a performance fee,” he added.
CF UK and CF Walker Crips UK Growth have a TER of 2.26 and 1.56 per cent respectively.
Manager of Margetts St Johns Realistic Core Graham Toone says he has cut the TER of his fund to make it more competitive.
He commented: “It wouldn’t be cost-effective to handle regulatory matter in-house, so we outsource them to Margetts.”
“Using an administration service can hold back some of the smaller funds, which is why we took measures to decrease the cost of our annual management charge (AMC).”
“The fund is at around £50m at the moment, but once that gets to £100m we may chose to bring administration in-house,” he added.
Margetts St Johns Realistic Core currently has a TER of 1.63 per cent.