Are funds good value for money?


diy investing

VALUE for money is important in any industry and fund management is no different. With over 3,000 investment funds to choose from, savers are spoiled for choice on where to place their hard-earned cash.


Selecting the right funds is the key to bumper returns in the future. With the global stock markets having plummeted as a result of coronavirus, investors will want all the information they can get their hands on to give themselves the best chance of getting a good return on their money.

There’s a wealth of information from fund management companies as well as platforms that provide analysis — not to mention the financial press — on all the funds available to private investors.

In a step towards helping ordinary investors wade through the good, the bad and the ugly, the Financial Conduct Authority (FCA) ruled that asset management companies must name and shame any funds they offer which are not providing value for money. This must now be done yearly in a ‘value assessment report’.

The facts


The FCA said fund bosses must address quality of service, performance, costs, economies of scale, comparable market rates, comparable services and classes of units. The reports must justify why investors hold more expensive versions (known as share classes) of an investment when a cheaper one is available.  A welcome rule for consumers is that the FCA rules require the reports to be concise and jargon-free.

Many of the big names have published reports already – the timing of when they do so depends on the individual fund accounting dates.

The findings so far…


A number of leading asset managers have reported so far, resulting in widespread cost savings for individual investors in cases where asset managers admit their funds are not offering best value.

Vanguard, the world’s biggest fund manager, was one of the first to publish these new-style reports at the beginning of the year. It used a traffic light system for its 29 UK funds, flagging four as ‘amber’ for their poor returns. It promised they would be closely monitored and has revamped its fees in a bid to boost their performance.

April saw a flurry of reports from fund giants. Schroders concluded that one in ten of its funds is failing to deliver good returns. They include the European Smaller Companies, UK Alpha and MM Diversity Tactical funds.

Schroders announced plans to save investors about £8m a year, which include cuts to charges on 15 funds and transferring 29,000 customers on to cheaper versions of its funds.

Artemis revealed it implemented new pricing in February to enable it to pass on economies of scale to its customers. Columbia Threadneedle said last month that it intended to transfer 30,000 customers to cheaper share classes of its funds.

Janus Henderson’s recent assessment resulted in more than 100,000 retail investors being moved to a new share class and benefiting from reduced charges. Its report noted that the Index-Linked Bond fund has a higher ongoing charge figure (OCF), at 0.54%, almost twice as high as its actively managed sector peers, at 0.29%. It said the annual charges will be reduced.

Of those that reported earlier this year, Aviva Investors announced fee cuts for thousands of investors in funds that were identified as not good value. However, fees were not cut for many poorly performing funds.

HL, the largest investment platform, assessed 10 popular multi-manager funds. These are funds that hold other funds rather than individual stocks. Its report admitted many were underperforming, but concluded they were still good value.

Have value assessment reports been a success?


Commentators have frequently argued that for too long, asset managers have been guilty of failing to deal quickly enough with poorly performing funds. The assessments are successfully exposing some funds that are failing to offer good value, but not all.

The cost reductions for investors detailed in the reports will result in more money invested rather than lining the pockets of asset managers. Every penny counts, especially at the moment as incomes are cut as a result of lockdown and the economic future remains so uncertain.

One frustration is that while the FCA’s rules on content and communication style are clear, there are no prescriptive guidance on how to get these documents in front of individual investors.

It ruled only that they should be ‘made available and published’. While many investors will benefit from the outcome of the assessment — such as reduced fees — they are likely to miss the actual report where they can find warts-and-all evaluation of individual funds.

As is often the case, there is more work to be done. But things are moving in the right direction.

black swan isa

Click to visit our friends at:

diy investing

Financial education: New to investing? Avoid these seven common mistakes

investing basics risk

Investing Basics: A simple guide to risk profiling

Leave a Response

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Be informed as this exciting sector develops and receive DIY Investor Magazine free to your inbox – take control of your financial future