Equity funds: Low-cost movement gathers momentum

3rd March 2011

The move will be seen as a response to passive tracker funds and exchange traded funds which are proving increasingly popular with UK investors and have a very large market share in the US and Europe.

Active fund managers argue that with passive funds you are guaranteed not to beat whatever index you are following while with active managers you have the chance of doing so and now at a similar cost.

The fund will be managed by Sue Noffke, Andy Simpson and Jessica Ground, who form Schroders' UK Prime Team, a specialist unit within the broader UK equity team headed by Richard Buxton. The manager says the UK Prime team runs around £4.7bn of assets.

The fund manager says that on a representative sample portfolio their performance has been 1.3 per cent per annum net of fees.

Schroders' managing director UK intermediary Robin Stoakley said: "We believe that actively managed funds with strong fundamental investment processes like Schroder UK Core are a great alternative to passive funds which simply allocate assets according to size and are destined to underperform. In an investor's portfolio a low cost, lower risk fund like Schroder UK Core has an important place alongside higher octane funds such as our Alpha Plus range."

The move follows JP Morgan which launched a low cost active fund in January.

Martin Bamford, a chartered financial planner at Informed Choice, blogs that the funds are being launched as the investment industry responds to a need for greater pricing transparency.

He writes: "Investors (and some advisers, such as Informed Choice) want to know where fund charges are going.

Using a typical actively managed fund with a 1.5% annual management charge as an example, this charge is usually allocated 0.75% to the fund manager, 0.25% to the investment administration platform and 0.5% to the financial adviser.

We believe that it is important that investors know where these charges are going, to enable them to work out if they are getting value for money.

"When considering the cost of investing money, it is essential to compare like with like. This means looking at the cost of fund management without the cost of an administration platform or advice."

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