Vanguard has put the spotlight on fund fees once again, following its announcement that it will launch four actively-managed funds with low ongoing charges figures (OCFs).
While its global emerging markets fund will have an OCF of 0.85 per cent, its global equity, global equity income and global balance funds will all have OCFs of 0.60 per cent.
This is exactly half the price of the average charges figure in the combined IA Global and IA Global Equity Income sectors, which currently stands at 1.2 per cent.
In an article published earlier this month, FE Trustnet looked at five funds in the combined sectors that have below-average charges and have also delivered strong long-term performances, with the likes of Rathbone Global Opportunities, Baillie Gifford Global Alpha Growth and Henderson Global Care Growth all making their way onto the list.
With the lowest-cost fund of these five – Baillie Gifford Global Alpha Growth – sporting an OCF of 0.68 per cent though, Vanguard’s new offerings still come up trumps in terms of charges.
The investment management firm is well known for its wide range of passive offerings, which are often popular among investors and of course have lower charges than their active competitors.
However, Vanguard began to dip its toe into the water of the UK active management universe at the end of last year, when it launched its first low-cost actively-managed ETFs. These four investment vehicles, which have OCFs of 0.22 per cent, buy global shares and screen them based on a set list of characteristics. 
With the asset management giant launching its fully active range with competitive OCFs – which will be managed by the likes of Vanguard’s quantitative equity group, Baillie Gifford and Wellington Management – could this lead to pressure for another wave of fee cuts in the asset management industry?
Darius McDermott (pictured), managing director of Chelsea Financial Services, says the industry has been under pricing pressure for a while and argues that a sole focus on fees is no longer necessary.
“I think fees are a very important issue but the whole focus on fees and fees alone is actually becoming slightly overdone now,” he said.
“At the end of the day most people want performance and most performance charts and tables are all net of fees.”
“We do know that fees have an impact on total return, of course they do, but if you look at your performance and it says you’re up 10 per cent it’s already after the fees have been paid.”
When it comes to the launch of Vanguard’s new offerings, he remains dubious that this will pile on the pressure for other fund management houses to lower their fees even if the funds consistently outperform their more expensive peers.
“Pricing pressure is good but where many investors – as we do – try to identify the very best funds, you’re still not going to see pressure on the best funds in terms of pricing, especially where there’s capacity constraint,” he continued.
“If you’re running a large-cap strategy and you can run £10bn or £20bn, if you let some of that go through offering a keener price it’s not an issue. However, if you’re running a multi-cap strategy with a good wedge in small-caps, you can only run up to £1bn and if you’re very good at it, you’re not likely to want to cut many fee deals. Each individual fund has its own merits.”
Danny Cox, head of communications at Hargreaves Lansdown, agrees that the launch of cheaper funds into the industry is unlikely to make any difference of the shorter term and points out that many global funds with high fees are still seeing large inflows.
According to data from FE Analytics, there are 16 funds in the IA Global and IA Global Equity Income sectors that charge in excess of 2 per cent, and 134 funds out of 297 charge more than 100 basis points.
Table of 10 global funds with highest OCFs
Source: FE Analytics
“In the UK, we’ve seen Woodford coming in with low-charging funds, which you can get for as low as 60 basis points, and we’ve not seen many of the other main players react and drop their pricing,” Cox pointed out.
“Part of the problem we have is that we have far too many funds – there are over 3,000 funds and there’s a massive level of choice. It’s really all down to whether these funds deliver on performance or not.”
“So, if funds like the Vanguard funds or Woodford funds deliver, then it is more likely that money is going to go in their direction and perhaps put some kind of pressure on pricing.”
However, he points out the likes of Fundsmith Equity – which, according to our data has seen the largest inflows within both the IA Global and IA Global Equity Income sectors over the last year – has an OCF of 1.07 per cent and is still well-supported by investors.
The head of communications says it seems that Fundsmith has no intention of lowering its fees and is unlikely to do so simply because newly-launched funds in the global space are offering lower charges.
“With any active fund you need to focus most of your attention on what the manager is doing. What we would look at with the Vanguard funds is whether the managers have added value to their stock selection over time and whether they had a consistent track record of producing extra performance,” he said.
“Providing they could do that, we would certainly be willing to look at them. As with any active manager, it’s all about whether the active manager is adding value over and above and seeing where that consistency has come from.”
