The importance of cost when investing in funds

6th January 2014


Charles Stanley Direct’s Ben Yearsley considers an active fund that has dramatically cut its charges.

One of the most common debates in fund management concerns the higher annual cost of actively managed funds versus lower cost index tracking funds. Index trackers are cheaper and give more certainty as to the performance (in fact guaranteed underperformance) versus a specific index. Active funds have the opportunity to either outperform, or underperform dependent on the ability of the fund manager.

As you may have read in yesterday’s Sunday Telegraph, the debate could now be entering a new phase with the announcement that the actively managed Melchior Global Equity Fund’s annual management charge (AMC) has been reduced to just 0.25%. This can be compared typically to 0.75% for the majority of actively managed clean priced funds (and 1.5% for most existing commission-paying funds).

This fund is available on the Charles Stanley Direct platform, which when combined with our low annual platform fee of 0.25% means the cost of holding the fund is 0.5% each year. Over the long term, the effect of lower charges could have a significant positive impact on the value of your investment.

So what of the investment team running this fund? Nick Mottram heads up the global team at DSP (managers of the Melchior fund range) having spent time previously at Origin, Investec and Schroders. He has been instrumental in setting up investment processes at these firms and is now doing so successfully at Melchior.

Cynics would ask if the process and fund is good why is the AMC so low? It is a fair question; however, it is an equally fair question to ask why fees for other funds are much higher. Mr Mottram believes his process is scalable with the team he currently has. In a lower-return world, the impact of fees on performance has to be a consideration. This fund offers a core global holding, with a disciplined, proven process. Although not part of ourFoundation Fundlist of preferred investments, we will be watching it with interest in the coming months.

Most fund management groups have launched clean priced funds, yet very few are currently widely available via the major platforms. Charles Stanley Direct is one of the few investment platforms to offer a wide universe of them – currently we have over 1,800 clean funds available. This Melchior fund is one of the cheapest, if not the cheapest active fund available today.

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