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Fees fall as actively manage funds outperform passives

Analysis by FundCalibre shows that fees for actively managed equity funds have fallen by more than 15% over the past four years.

Looking back at ongoing charges figures (OCFs) in 2017 – as far back as the data allows – the average annual charge for actively managed equity funds has fallen by more than 15% from 1.13% to 0.95%*. What’s more, the average annual cost of a newly launched equity fund is now just 0.85%*.

Commenting on the findings, Darius McDermott, managing director of FundCalibre, said: “We’re really pleased to see that the UK fund industry has reacted to the passive threat by cutting fees. The annual costs for investors are now substantially lower than they were even four years ago.

“Recent fee cuts from Baillie Gifford, Matthews Asia, Nomura and M&G are just a few examples of where active managers are now putting pressure on passives.

“More and more managers are now passing on economies of scale to investors. Importantly, they are doing so on some of their most popular and best performing funds.”

While fees have gradually reduced, actively managed equity funds have also provided superior performance over their passive peers.

Further analysis by FundCalibre shows that in the chaotic sell-off of the global pandemic, and subsequent rebound, active equity fund managers outperformed their passive peers by 8% over the past year^.

The research shows that 70% of actively managed global equity funds outperformed their passive peers over the 12 months, returning an average 16.55% – almost twice the average passive return of 8.48%^.

The global universe wasn’t the only area to see active management shine.  69% of actively managed UK equity funds beat passives over one year, outperforming by 6% on average^. And even in the US, where the market is famously hard to outperform, 51% of actively managed funds outperformed their passive peers by an average 4% over one year (16.88% vs 12.90%)^.

Darius added: “These results show that active managers really did their job in the volatility we saw in 2020. Their greater flexibility allowed them to take advantage in the extreme price moves in a way their passive counterparts simply couldn’t match.”

“The research also shows that actively managed equity funds in each of these three regions have outperformed passives over three, five and ten years too.

“The huge competition in the UK funds industry is now providing great value and choice for the ordinary investor and the options and costs today are incomparable to 25 years ago, when I first started work in the industry. The FCA deserves a lot of credit for fostering this competitive environment.

“There’s still further to go and we believe costs for active management will continue to fall.”

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