Brewin Dolphin is cutting costs by up to 18 basis points on funds in its managed portfolio service as it introduces segregated mandates for core asset classes.
Star fund managers including Neil Woodford and Nick Train are among the line-up to run segregated mandates in the manager-of-manager approach for four core asset classes.
The MPS’s global equity portfolio will see the largest drop in charges with underlying fund OCFs falling 27 per cent from 69bps to 51bps. The balanced portfolio sees the smallest fall on underlying costs, but will still drop 10bps to 52bps – a saving of 17 per cent.
Maitland is the authorised corporate director with a fee of 5bps, which is included in the reduced fees.
Brewin Dolphin will continue to charge 0.3 per cent for running the portfolios, which also include cautious, income and growth options.
The reduction in charges results from Brewin Dolphin investing directly with managers through segregated portfolios for UK equity, UK equity income, North American equities and global bond strategies.
Impact of segregated mandates on underlying fund OCFs
|MPS Model||Before (bps||After (bps)||% reduction|
The 40 per cent of the MPS that invests in equities from other regions, property and absolute return will remain in third-party retail funds.
Head of research Guy Foster says they started considering the segregated mandate approach when assets hit £2bn towards the end of 2016.
Now assets are around £2.5bn, having grown from just £500m in September 2015. “That’s the level of assets we think works for this manager-of-manager approach,” Foster says.
Foster says the segregated mandates will be more cost efficient when it comes to transaction charges, because entire fund holdings do not need to be sold when managers are switched or if a manager changes firms.
Further savings will be passed on to investors as assets pass certain thresholds, Foster says. “What we don’t know is how much MPS will grow or in what timescale.”
In aggregate the changes will save investors £3m annually.
The MPS is available on 11 platforms: Aegon, Ascentric, Aviva, Fusion, James Hay, Novia, Nucleus, Standard Life, Standard Life Elevate, Transact and Zurich.
Woodford makes the cut
Foster stands by the decision to retain Woodford, who suffered underperformance in 2017, to run one of the segregated mandates for UK equity income.
“He’s had periods of underperformance and we expect him to have periods of underperformance. Historically, it’s been a good time to take advantage of those periods of underperformance to invest with him,” Foster says.
Segregated mandates for core portfolios in MPS
|Fund:||Fund house:||Manager name:|
|UK Equity||Investec Asset Management||Alastair Mundy|
|JP Morgan Asset Management||Team based|
|Lindsell Train||Nick Train|
|Miton||Gervais Williams/ Martin Turner|
|Old Mutual Asset Management||Richard Watts|
|UK Equity Income||Columbia Threadneedle||Team based|
|Investec Asset Management||Blake Hutchins|
|Man Group||Henry Dixon|
|North American Equity||Baillie Gifford||Tom Slater and team|
|JP Morgan Asset Management||Clare Hart|
|Global Bonds||Deutsche Asset Management||Team based|
|Insight Investment||Harvey Bradley and team|
|Pimco||Ketish Pothalingam and team|
Foster adds: “In 2009 to 2011 [Woodford] underperformed and he got all of that underperformance back in a quarter, which is why this mechanical rebalancing service that MPS-type services offer works so well.”
The MPS portfolios are rebalanced monthly.
European and emerging market equities don’t feature in the switch to segregated mandates because in the past they have gone to zero weightings in those asset classes. “We obviously wouldn’t be able to do that in a manager-of-managers approach for those particular asset classes,” Foster says.
In a contrarian move, US equities are currently the largest overweight in the MPS portfolios, accounting for 20 per cent of the balanced portfolio. Portfolios are slightly overweight UK equities, which are 33 per cent of the balanced portfolio, and are underweight bonds, which account for 16 per cent of the balanced portfolio.
Foster says: “The thing we’re looking at closest at the moment is emerging markets because the evidence of China slowing its stimulus trying to slow its economy down. It’s very crowded at the moment.”