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Backing for Schroders and JPM’s alternative thinking

Berens
Berens: ’Why wouldn’t you consider these funds if you mightget better returns?’

Advisers and providers have welcomed Schroders’ new low-cost fund which has been designed as an alternative to passive investing ahead of the RDR.

The Schroder UK core fund has a total expense ratio of 40 basis points and will target performance of 1.3 per cent a year of the FTSE All-Share benchmark.
The fund launches on March 18 and will be managed by the UK prime team of Sue Noffke, Andy Simpson and Jessica Ground.

It has a tracking error of 1.5 to 3.5 per cent and has both stock and sector constraints to the benchmark.

Noffke says the portfolio is well diversified across stocks and sectors, with around 50-65 stocks. It will have a plus or minus 3 per cent exposure to the top 20 companies in the All- Share and plus or minus 2 per cent to other companies. There will be a 5 per cent plus or minus weighting to each sector.

Noffke says: “It will be high conviction. We will have benchmark coverage of around 50 per cent which means it is taking a few risks. The way we control those risks through the sector and stock controls is what we feel separates us from others in the market. We know how to tweak the risk controls to meet performance targets. These risk controls have been stress-tested in the past four years in what has been a difficult environment.”

Last month, JP Morgan launched its own low-cost active fund. The JPM active index plus fund is a rebrand of the firm’s UK active 350 offering and has a minimum TER of 0.55 per cent, including a 10 per cent performance fee.

Head of UK retail sales Jasper Berens anticipates growing demand from investors for these types of products.

He says: “Passive funds are not des-igned to outperform an index and indeed should not, whereas the JPM fund and the Schroders fund could, at similar costs. If you are an investor or an adviser, why wouldn’t you at least consider these funds in place of your existing UK passive or ETF holdings if you know you might get better returns?”

Skerritt Consultants head of investments Andy Merricks says: “It is always good to have options although cost is not always the most important thing, especially if performance outweighs fees.

“I am glad to see the fund management industry producing these honest, transparent types of products and we will look at them.”

TCF joint founder and chief executive David Norman says it is ridiculous that TERs have gone up in the last 10 years while assets under management have doubled.

He says: “The challenge for existing firms is how to respond without destroying the high value from their current product range, hence the launch of new funds rather than reducing fees on existing funds. One assumes investors will grasp this opportunity and switch to the newer, low-cost products.”

Bestinvest senior investment adv- iser Adrian Lowcock says: “Much will depend on how good the service is attached to these products in terms of performance, accessibility and choice. It is important that these products are available on platforms, which it appears they will be. The fact is that these products will become more popular and will have to be looked at in terms of where they sit in an investor’s portfolio.”

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