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Fees on multi-asset funds drop further in 2018

Fees on multi-asset funds drop further in 2018

Fees on multi-asset and multi-manager portfolios have fallen again in 2018, latest figures from research firm Defaqto have revealed.

According to the data, there has been an average drop of five basis points across multi-asset and a 12 basis point drop for multi-manager funds.

Back in 2016, the firm looked at fund manager ongoing charges (OCFs) based on Diamond Rating Return Focused universe of funds, and saw a decline in costs for investors using both multi-asset and multi-manager funds.

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Since then, fees have fallen further, with multi-asset funds tending to lead the way in terms of cost reductions, the research has found. 

In 2014, the average OCF for multi-asset funds was 1.34 per cent, while the average multi-manager was 1.73 per cent. 

This fell to 1.18 per cent and 1.49 per cent in 2016 for multi-asset and multi-manager respectively, falling once again over the two years to 2018.

According to latest figures, the average multi-asset fund is now 1.13 per cent and the average multi-manager portfolio will cost investors 1.37 per cent, although the higher the level of equities within a portfolio, the higher the charges tend to be.

Patrick Norwood, insight analyst at Defaqto, commented: "Charges generally increase with increasing amount of equities permitted in the portfolio.

"Also, multi-managers remain more expensive than multi-asset funds on average as the multi-manager approach usually employs external fund managers, introducing an extra layer of fees."

The table (below) shows the numbers broken down by Investment Association (IA) sector.

2014 OCFMixed 0-35%Mixed 20-60%Mixed 40-85%FlexibleAverage
Multi-asset1.11%1.33%1.35%1.45%1.34%
Multi-manager1.53%1.78%1.71%1.75%1.73%
2016 OCF     
Multi-asset1.09%1.07%1.16%1.31%1.18%
Multi-manager1.31%1.43%1.57%1.54%1.49%
2018 OCF     
Multi-asset1.03%1.06%1.12%1.19%1.13%
Multi-manager1.17%1.42%1.35%1.41%1.37%

Source: Defaqto/Morningstar

When doing the Diamond Ratings for these types of fund, in order to compare like for like, Defaqto split the universe firstly into multi-asset and multi-manager and then by the four IA Mixed Asset sectors. These are:

  • Mixed Investment 0-35% Shares.
  • Mixed Investment 20-60% Shares.
  • Mixed Investment 40-85% Shares.
  • Flexible Investment.

Ben Willis, investment manager for Whitechurch, said: "Costs are now a key focus for advisers and investors and, historically, multi-asset funds have been at the higher end.

"With the advent of Mifid II and the requirement to display transaction costs on top of the OCF, some of the costs involved for running these funds will come a shock. 

"In light of that, I think multi-asset funds will move to passive exposures – whether ETFs or smart beta products in order to keep overall costs down and to remain competitive."

Find out more

To find out more about multi-asset investing, check out FTAdviser's dedicated multi-asset in-focus page here, which contains CPD-qualifying guides and helpful features exploring different aspects of multi-asset investment

simoney.kyriakou@ft.com