Fidelity drops fettered fund of funds for cheaper alternative

Bill McQuaker to run merged range at a cheaper price despite being unfettered

Fidelity International has announced it is dropping its fettered fund of funds range less than six months after announcing its unfettered counterpart was transitioning to cheaper manager of managers approach using a segregated mandates approach overseen by Bill McQuaker.

The £1.9bn Multi Asset range will merge with the similarly named Multi Asset Open range, which has £884m of assets, in March 2019. To faciliate the merger, both ranges have already been in the process of transitioning into the new structure since Q3 2018, which is composed of a series of nine segregated mandates broken down by asset class.

Brewin Dolphin made a similar change to its managed portfolio service in Q1 2018 following in the footsteps of Quilter Investors and St James’s Place.

While fettered fund of funds are usually promoted as a way to access cheaper fees via in-house products, the manager of manager approach means Fidelity investors will actually pay less for the unfettered range, which are five to 15 basis cheaper than comparably risk-profiled fettered products.

Manager of managers compete on cost

Fidelity International is among the few firms that have the scale to operate the manager of manager structure, said Fundscape editorial director Gavin Fielding.

Advisers and retail investors are looking for alternatives to cheap passives as markets turn more volatile, but they still want products that compete on price, Fielding said.

Fidelity International head of wholesale John Clougherty said the range is intended to appeal to advisers who outsource their investment decisions. “As the operational and regulatory burden of Mifid II continues to bite the adviser community, we expect there to be increasing demand for robust, scalable multi-asset solutions.”

While manager of manager funds are cheaper, there are still advantages to funds of funds, said Fielding. “A fund of funds can make faster tactical decisions as it can sell out of an undesired fund and can mix up regions, style, asset classes and so on.”

Fettered fund of funds still have a role

Willis Owen head of personal investing Adrian Lowcock said there is still a role for fettered fund of funds ranges despite the trend for asset managers to instead focus on unfettered products. “The manager does get a better insight into the funds than when buying external funds.  This access allows the manager to better time investments and asset allocation decisions. Within the larger houses there should be enough fund choice from which a fettered manager can select some good funds covering most of the markets.”

Lower OCFs are typically another advantage of fettered over unfettered funds despite this not being the case in Fidelity’s multi-asset range due to its adoption of the manager of manager approach. “If they are able to get the unfettered approach at a cheaper price it removes one of the big selling points of a fettered approach,” Lowcock said of Fidelity’s decision.

Fidelity multi-asset range

There will be no staff losses as a result of the change, a Fidelity spokesperson confirmed. Nick Peters, who ran the fettered fund of funds range, will focus on Sicav products and institutional mandates he already manages.

The largest fund in the fettered range is the £705.56m Wealthbuilder product, which will now merge with the £604m Open World, also the largest fund in the unfettered range. Both sit in the Investment Association Global sector.

Fidelity multi asset changes

Merging from

 

Merging to
FundOCF (N shares)FundPost-merger OCF (N shares)
Fidelity Multi Asset Defensive1.15%Fidelity Multi Asset Open Defensive1.00%
Fidelity Multi Asset Strategic1.10%Fidelity Multi Asset Open Strategic1.05%
Fidelity Multi Asset Growth1.15%Fidelity Multi Asset Open Growth1.10%
Fidelity Multi Asset Adventurous1.20%Fidelity Multi Asset Open Adventurous1.15%
Fidelity WealthBuilder1.25%Fidelity Open World1.20%

McQuaker is the primary manager on the Open World fund and co-manages the remainder of the range with Ayesha Akbar.

Lowcock described McQuaker as a reputable fund manager with a lot of experience.

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