The Montanaro UK Income, iShares Mid Cap UK Equity index and the HSBC FTSE 250 index funds were the only low-cost products to deliver top-quartile performance, said the research, which was published today.
However, it also showed over half of bottom quartile funds had an OCF greater than 1%.
Top-performing low-cost funds
| Fund | Five-year performance | OCF |
| Montanaro UK Income | 71.26% | 0.35% |
| iShares Mid Cap UK Equity index | 57.69% | 0.17% |
| HSBC FTSE 250 index | 56.86% | 0.18% |
Source: Chelsea Financial Services
The analysis was based on performance figures for the 238 funds in the IA UK All Companies sector with a five year or longer track record.
Chelsea managing director Darius McDermott (pictured) said: “Buying the cheapest fund is not going to result in the best consumer outcome.”
The FCA released an occasional paper in April, examining the impact of fees disclosure on retail investor behaviour, which highlighted how fund choices were affected when information about the detrimental impact of fund fees was highlighted at the point of investing.
The FCA paper noted investors exposed to fees information were more likely than the control group to pick both cheaper funds and funds with higher performance.
McDermott said: “More companies could, and should, pass on their economies of scale to investors, but at the same time, investors need to understand that returns after charges are far more important than the level of fees alone.”
The research calculated that funds with an OCF of 1% outperformed rivals by up to 208% over the five-year period.
Costly not always top quartile
The Chelsea research also showed high-cost funds were more likely to appear in the bottom quartile.
Thirty-four out of 60 fourth-quartile funds had an OCF of 1%.
The worst-performing group of funds also included the two most expensive funds, TC Delmore Growth & Income and Candriam Equities L United Kingdom, which have OCFs of 2.91% and 2.34% respectively.
The only other fund in the sample with an OCF greater than 2%, MI Brompton UK Recovery Trust, was top quartile, returning 56.74% over the period. Its OCF is 2.17%.
However, it underperformed the three low-cost rivals from Montanaro, iShares and HSBC in the top quartile.
Performance of costliest funds
| Fund | Five-year performance | OCF | Rank |
| TC Delmore Growth & Income | 22% | 2.91% | 223 |
| Candriam Equities | 23.64% | 2.34% | 217 |
| MI Brompton UK Recovery Trust | 56.74% | 2.17% | 59 |
