The launches of low-cost, actively managed products by JP Morgan Asset Management and Schroders are unlikely to be the last this year. As the retail distribution review prompts a greater take-up of passive funds by advisers, active managers are seeking ways to defend their market share. JPM was first off the blocks in February and Schroders followed with similar launches in March.
JPM rebadged its UK active 350 Oeic as UK active index plus. The fund has “a lower-risk management framework” than its predecessor, according to the firm, and a revised FTSE All-share benchmark. The annual management charge has been cut to 0.25 per cent and fixed costs add a further 15 basis points. The capped 10 per cent performance fee takes the maximum total expense ratio to 0.55 per cent.
Schroders launched retail versions of institutional strategies. UK core and QEP global core aim to outperform the FTSE All-share and MSCI World indices respectively by one percentage point. Both portfolios have AMCs of 0.35 per cent and total expense ratios capped at 0.4 per cent and neither has a performance fee.
The new breed of active funds met with a positive response from some proponents of low-cost investing but Adviser Fund Index panellists are yet to embrace the approach.
RSM Tenon head of investment management Adrian Gough says the concept is flawed. He supports moves by active managers to reduce fees, Gough says the new products do not offer sufficient advantages over trackers.
He says: “These things are trying to deliver benchmark plus a bit. It is a classic institutional offering where you have got some style drift or where you are trying to deliver a bit less risk than the index but index returns.
“Your alpha is marginal. We can buy tracker funds for 15bps so if you compare a benchmark-plus-a-bit fund against a tracker, you could be looking at a 25bps difference in the TER as a starting point.
“You have then got the additional costs that go with the underlying trading, which will not be in the TER. There is a risk that it might not deliver the benchmark. Do you want to take that chance for a potential 50 or 100bps of alpha?”
For active management, Gough prefers traditional funds that are run in a more aggressive, high-alpha style.
Whitechurch Securities head of research Ben Willis takes a similar line.
He says: “If low-cost active funds can out- perform the benchmark, then there is no reason why they cannot underperform it as well. Then you are back to the same old argument. Things are great when funds are outperforming and you can pretty much slap any amount of fees on there as long as they continue to outperform. Even something low-cost that starts under- performing the market will attract criticism.”