‘I paid myself only £21,000 in three years’
Candriam Equities L United Kingdom, each with an OCF of more than 2pc, dramatically underperformed the FTSE All Share. The only other fund with an OCF greater than 2pc, the Brompton UK Recovery Trust, was among the top 25pc of funds.
When is a fund worth a premium?
Edward Park, of wealth manager Brooks Macdonald, said the first stage in picking a fund is to learn about its investment process and philosophy to see if it fits with the investor’s goals.
Then, he said, the fund’s performance after fees can be assessed against both its peers and the benchmark index. Read more about how to do this at telegraph. co.uk/go/fundquestions.
“This is to test the value the fund can add and that it behaves how you’d expect in varying market conditions,” he said. “If you are comfortable that the fund is performing well, and the manager is generating additional value, then cost is a consideration but not the most important factor.”
He added that a fee of more than 1pc required “a good explanation” but that “price alone shouldn’t mean a fund is completely discounted”.
There are circumstances in which a higher fee is to be expected. Funds that operate in a niche sector such as smaller companies or technology, or where there are limits to how big the fund can grow, may warrant a premium price.
“The core justification for higher fees is a strong investment proposition combined with either a specialist area or a constraint on fund size,” said Mr Park. He highlighted Old Mutual UK Dynamic and Tritax Big Box as examples of funds where a higher fee was justified.
The Old Mutual fund’s size is “naturally limited” by its investing style, which requires it to be able to buy into and sell out of small and medium-sized companies at will, he said. Tritax Big Box, a quoted fund that invests exclusively in distribution and logistics warehouses, “provides access to a specialist management team” whose “specific skill set validates a greater than average charge”.