Three fund groups featured in recent research as among those charging the highest fees have defended their approaches.
This week research by the Lang Cat showed some fund managers’ costs increased at least two times beyond the ongoing charges figure, as Mifid II rules around fee disclosure take effect.
Under Mifid II, which came into force on 3 January, fund houses must disclose all charges relating to a product to investors upfront.
The Lang Cat research found that once platform and performance fees are included costs can be up to four times higher than the ongoing charges figure.
Of the 20 most popular funds analysed, the £9.4bn Old Mutual Global Equity Absolute Return was among the top three funds with the biggest difference between its advertised charge and the true total cost.
The fund has an annual fee of 0.85 per cent but by adding transaction costs of 0.4 per cent it reveals investors have been paying nearly 50 per cent more of what they thought they were.
The £2bn Investec UK Alpha fund was the second most expensive in the list. It charges an OCF of 0.83 per cent, but the actual cost of ownership adding transaction costs amounts to 1.47 per cent.
Two Vanguard funds also featured in the list of 20 funds analysed. The Vanguard LS 60% Equity fund has an OCF of 0.22 per cent but the actual cost of ownership is 0.33 per cent once transaction costs of 0.11 per cent are added.
Old Mutual Global Investors:
“The Old Mutual Global Equity Absolute Return fund is a market neutral, systematic equity fund that utilises sophisticated technology to identify the most attractive investment opportunities, while avoiding a style bias and overexposure to macro risk.
The management team consistently monitor the economic environment and investor sentiment, allowing the fund to quickly adapt to changing markets. Due to the nature of the investment approach the fund is highly liquid, with high turnover and small stock positions.
This approach has led to significant alpha generation, with a cumulative return of 49 per cent, net of fees, versus the sector average of -0.3 per cent, over five year, according to Morningstar.
We continue to believe that the introduction of an “all in fee”, inclusive of transaction costs, could pose an unintended conflict of interest between asset managers and the investors for whom they manage money by providing an incentive to reduce the level of trading for reasons unrelated to market events.
Further, a constraint on costs could potentially limit the viability of higher turnover investment strategies, such as the Old Mutual Global Equity Absolute Return fund, even when they lead to demonstrably superior investment outcomes. This would manifestly not be in clients’ interests.”
Investec Asset Management:
“At this early stage of implementing the new Mifid II regulations, there appear to be differing methodologies in the calculation of transaction costs on funds, as investment managers are interpreting Mifid II’s guidelines differently.
In line with ESMA’s recommendations Investec Asset Management has elected to use the full complex calculation methodology of the Packaged Retail and Insurance-based Investment Products regulation to disclose fund charges under Mifid II, in order to be 100 per cent and in line with regulation as it evolves.
Vanguard head of equity product management Mark Fitzgerald:
“Vanguard is focused on keeping costs low. We believe the ongoing charges figure of 0.22 per cent for the LifeStrategy range, the fee received by Vanguard, is highly competitive. Equally, Vanguard does not profit form transaction costs.
These reflect the costs incurred when buying or selling the underlying investments with the fund, including costs such as brokerage commissions and stamp duty. We use our scale, reach and experience to trade globally at best execution levels to keep these costs as low as possible.
The 11bps of transaction costs projected for the LifeStrategy range covers access to 68 global markets and over 6000 securities across forty sectors, regularly rebalanced in a risk controlled manner, in a single, simple product.
As a vocal proponent of low-cost investing and transparency, Vanguard continues to support efforts to provide investors with simple and meaningful disclosure of investment costs. Unfortunately, at present the new costs and charges disclosure requirements do not enable investors to make like for like cost comparisons between funds.
Different methodologies for calculating transactions costs are permitted. There is also no standard format for disclosure of costs and charges to end investors. As a result, we are seeing widely divergent costs being projected, even between funds with similar investment objectives.”