Buy cheap, buy twice?

That was the ‘shocking’ findings of an FE survey which found out that actively managed funds are being shunned by investors because of their higher cost.

Not good news because, on average, of the 385 UK equity funds analysed by FE it was those with charges of 0.75 per cent which performed the best.

In fact they returned some 8 per cent more over three years; or 24.96 per cent compared to the 17.14 per cent average among those charging less than 0.75 per cent.

Of course there are some actively managed funds which are not doing quite what they say on the tin, i.e. they are a tracking fund in all but name.

But FE’s analysis still concludes a fifth of advisers and investors are missing out on the better returns offered by the vast majority of actively managed investments.

By dismissing a whole raft of funds charging more than 0.75 per cent, FE argued investors were missing out on some of the most best performers, including the £1.2bn Standard Life Investments UK Equity Income Unconstrained fund.

It has an annual charge of 1 per cent, but has returned nearly 31 per cent over three years, consistently outperforming the IA UK Equity Income sector, which has returned 17.2 per cent.

Investors, it might be argued, are being short-changed by advisers. Advisers who must be recommending funds simply because they charge very little.

We all know that you get what you pay for. And while there may be some excellent gems among those lower charging funds, this research shows that paying more all but indicates a better return.

The debate on active versus passive will no doubt continue to rumble on, but advisers might find they are better off exercising a little more active management of their own.