After two top-performing multi-manager funds were downgraded by Morningstar due to their higher-than-average charges last week, the question of whether the industry has become too hung up on costs has been raised by fund and wealth managers alike.
Clearly, multi-manager funds – with their layers of fees – are often more expensive than single managers’ fund charges.
City Asset Management’s James Calder told Portfolio Adviser the era of those multi-manager funds that have “quite a few snouts in the trough” may come to a gentle end in the coming years.
“If you were starting from scratch today you would not launch a multi-manager fund, you would offer people a model portfolio service then IFAs can chop and change as they like and on a headline basis it looks cheaper,” he said.
Of the 394 fund of funds worth more than £50m in the UK market currently the median OCF price is 1.14%, according to Portfolio Adviser analysis of FE Analytics data.
The figure, lowered by the inclusion of passive fund of funds, is high but not shockingly so.
But yet in today’s febrile environment it could put many investors off the multi-manager universe when offered the alternative of a lower cost single-manager or even passively-managed fund.
Sentiment is hovering precariously close to dismissing funds with higher fees before considering potential outcomes and returns on investment.
It is a worry echoed by Skerrits Wealth Management’s head of investments Andrew Merricks, who thinks people are forgetting the benefits of multi-manager strategies.
He said: “With multi-manager funds you get what you pay for. This focus on charges is quite a dangerous sign of a bull market where everyone is counting on the market going up.
“I think multi managers can come into their own as a defender of capital in a downturn and it’s not until we have had a correction that you actually appreciate what a multi manager can do.
“If a multi-manager fund is downgraded on cost I do think it is unfair – the analysts are looking at the wrong thing. Costs should be part of the whole assessment, not the focus.”
Morningstar analyst Randal Goldsmith defended the ratings agency’s focus on charges, part of its ‘Five Pillar’ decision-making process, as he says fees are “very important” for the end-investor.
“More attention is being paid to costs by the whole industry and regulators and that has led to a lot of fund groups bringing down their charges, but it has been noticeable that some multi-managers have been slow to bring down charges and that’s where things have changed,” he says.
