The funds that jus­tify their pre­mium fee

Don’t re­ject ex­pen­sive funds out of hand – they can turn out to be the best per­form­ers, writes James Con­ning­ton

The Sunday Telegraph - Money & Business - - Money -

The fees that fund man­agers charge are com­ing un­der ever-greater scrutiny, as many have been ac­cused of levy­ing ex­tor­tion­ate prices for do­ing lit­tle more than track­ing the mar­ket. Low charges alone, how­ever, are not an ef­fec­tive way to identify a fund ca­pa­ble of de­liv­er­ing out­per­for­mance.

Re­search from the City watch­dog found that when in­vestors were warned about the im­pact of fees on re­turns they tended to opt for cheaper funds. But many of the best-per­form­ing UK funds have an­nual charges that are con­sid­ered ex­pen­sive – 1pc or more.

Among the 238 funds in the UK “all com­pa­nies” sec­tor that have a five-year track record, the av­er­age on­go­ing charge fig­ure (OCF) of the 10 top-per­form­ing funds over five years is 0.99pc a year, ac­cord­ing to re­search from fund shop Chelsea Fi­nan­cial Ser­vices. This does not in­clude trans­ac­tion costs in­curred when a fund trades shares.

The top performer, Old Mu­tual UK Dy­namic, has an OCF of 1.07pc and an­nual trans­ac­tion costs of 0.52pc. The fund, which fo­cuses on small and medium-sized com­pa­nies, re­turned 130pc over five years af­ter all fees and costs, com­pared with 69pc for its bench­mark in­dex, the FTSE 250. Since its launch in 2009 it has re­turned 414pc, against 265pc for the in­dex.

The sec­ond-best performer, the Con­brio San­ford De­land UK Buf­fet­tol­ogy fund, has an OCF of 1.28pc plus trans­ac­tion costs of 0.22pc. It has re­turned 121pc over five years, com­pared with 44pc for the FTSE All Share in­dex.

Of the 60 top-per­form­ing funds in the UK all com­pa­nies sec­tor over five years, only three have an OCF of less than 0.7pc: Mon­ta­naro UK In­come, the ishares Mid Cap UK Eq­uity In­dex tracker fund and the HSBC FTSE 250 tracker fund. They re­turned 71pc, 58pc and 57pc.

Of the sec­tor’s 50 top-per­form­ing funds over 10 years, only five have an an­nual charge of 0.7pc or less, ac­cord­ing to data from FE An­a­lyt­ics.

Ac­tive funds with higher charges are also preva­lent among the bot­tom per­form­ers, how­ever: 34 of the 60 worst-per­form­ing UK all com­pa­nies funds over five years have an OCF of more than 1pc.

The two most ex­pen­sive funds, Del­more Growth & In­come and

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