However, over three years, a timeframe used by many investors to assess performance, the UK stockmarket has gone up roughly 50 per cent, with the FTSE All Share index moving from 1,897 points on March 13 2009 to 3,093 points on March 13 2012, albeit with extreme volatility. As investors in funds that tracked the index cheaply would have achieved a healthy return, the question is whether higher-cost managers have delivered much extra.
Using data from Morningstar on funds’ performance and total expense ratios (TERs), Investment Adviser split the Mixed Investment 40-85 per cent Shares sector into those funds with a TER above 2 per cent, compared with a sector average of 1.71 per cent, and those below. We then calculated how many of the higher TER funds were in the bottom quartile – 89th out of 117 or below – of the sector in terms of their performance over three years to March 13.
Of the 144 funds in the sector with a TER, a third have a TER of more than 2 per cent. The results showed that 16 out of the 29 fourth quartile funds had TERs of more than 2 per cent, with the £221.3m CF Miton Strategic Portfolio ranking last with a return of 20.14 per cent and a TER of 2.13 per cent. Other funds in this category include the £91.8m Insight Investment Wealth Builder Balanced, the £96.3m Thames River Balanced Managed and the £14.7m PSigma Dynamic Multi-Asset funds.
Meanwhile, the top 16 best performing funds with a TER of less than 2 per cent were all ranked within the top 20 of the sector, with the £599.7m Aberdeen Multi-Asset fund topping the list with a return of 68.9 per cent and a TER of 1.57 per cent.
However, also included among the best performers is the £226.1m CF Midas Balanced Growth fund, which is ranked sixth with a return of 65.41 per cent and a TER of approximately 1.74 per cent.
Mark Harper, head of marketing at Mam Funds, which runs both the CF Miton Strategic Portfolio and the CF Midas Balanced Growth vehicles, says one of the explanations for the gap between the TERs is the Strategic fund is a pure fund of funds, while the Balanced Growth fund holds financial instruments directly alongside funds.
However, he adds, when comparing the performance and TER of funds in the sector, it depends on the time period in question, as over five years the CF Miton Strategic Portfolio is ranked sixth out of 94 funds in the sector with a return of 33.04 per cent.
