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Baring warning on US multi-fund TERs

Baring Asset Management says tough negotiation on underlying annual management charges is crucial for multi-managers investing in the US in the light of Standard & Poor’s latest sector review.

S&P claims that some US equity funds based in Europe are being held back by hig- her total expense ratios than their US-based peers. It highlights the weak performance of a number of lower-risk Europe-based funds in the sector. In several cases, S&P attributes this to the man- ager being unwilling or unable to take enough risk to compensate for the higher total expense ratios relative to US-based mutual funds.

The report notes that a number of US funds distributed in Europe are primarily invested in lower-risk US mutual funds and have not been modified for the European market. Performance has been strong against their US peers but S&P says their performance against the benchmark has been hampered by the higher charges.

BAM runs a multi-man- ager US fund for the higher end of the market and claims that it is difficult for multi-managers to gain a comp- etitive edge by finding con- sistently good US funds because there is little information the manager can obtain which the market does not already know.

Smaller excess returns from US portfolios will see their outperformance sig- nificantly eroded by charges, the group adds.

Baring head of multi-manager David Coombs says: “Total expense ratios are an issue for multi-managers because you have got to jus- tify the existence of your fund. You cannot invest in a fund with a high TER that turns out to be a quasi US index tracker because there is no point in paying high fees for index-like returns.

“We have been negotiating the annual manage- ment charges on our underlying funds down signific- antly to below 1 per cent and any trail commission is reinvested.”

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