Liontrust to merge away costly tracker fund

The FTSE 100 tracker’s OCF is still half that of the active fund

Liontrust

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Liontrust is proposing to merge its only passive product with the Liontrust UK Growth fund, which could see charges double for investors in the already costly FTSE 100 tracker.

Unit holders in the tracker will vote on the proposed merger at an EGM on Friday.

If the extraordinary resolution for the merger does not pass, the Aim-listed manager will seek approval from the Financial Conduct Authority to terminate the tracker.

Straightforward merger

Simon Hildrey chief marketing officer at Liontrust said the £301m UK Growth fund co-managed by Anthony Cross (pictured) and Julian Fosh was the most suitable option for investors to be merged into given its UK large-cap equity focus and track record.

Ryan Hughes head of active portfolios at AJ Bell said while merging a passive fund with an active vehicle is unusual transitioning the holdings of the FTSE 100 tracker into the UK Growth fund should be relatively straightforward.

Double the cost 

The bigger concern is the increase in cost for customers and whether that is an appropriate move for underlying investors, he said. “They’ll have to look at that very carefully.”

The Liontrust UK Growth fund has double the OCF of the FTSE 100 tracker at 0.91% versus the latter’s 0.42%.

But Darius McDermott, managing director at Chelsea Financial Services, said there is no reason to keep a legacy tracker when investors can purchase passives for a much cheaper price. “Unless you’re going to have a competitively priced passive why would you bother?”

While some investors may not be receptive to their costs doubling, McDermott believes most will probably go willingly into the active fund.

He notes co-managers Cross and Fosh have a very good track record and the Liontrust UK Growth fund has returned nearly double the tracker after fees over the last five years (50.46% versus 27.16%). “That’s not a bad consumer outcome.”

‘An alpha generation fund house’

The £41.4m FTSE 100 tracker was the first fund ever launched by the fund group in 1995.

But now Hildrey said it had become an “anomaly” in the group’s exclusively active fund range.

McDermott agrees that the tracker fund is an outlier that doesn’t fit with the image Liontrust has cultivated of being an alpha generation house.

He said the decision to merge away the tracker was positive from a marketing standpoint and would put an end to confusion that the manager offers passive products. “This clears it up they are an active shop only.”

The merger is slated to go ahead on 25 October, following shareholder approval.

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