I’ve had an email from a reader complaining that I am obsessed with funds, wealth managers, fees, charges and the retail distribution review (RDR). In the old days, he says, I used to tell you more exciting things – what was going to happen in the eurozone; how the UK public finances were going to implode; and how the end-game of the financial crisis was very high inflation.
Flicking back through recent columns, I see that he is absolutely right. Towards the end of last year, I suddenly came over all micro. I think I can put my finger on what happened.
I decided, given that under the RDR all independent advisers had to be qualified up to what the Financial Services Authority (FSA) calls 'level 4', I would make sure that I was also at least level 4.
So I took advantage of the one-off opportunity offered by the FSA last year for those who were level 3 at the time (as I was) to take the Private Client and Investment Advice and Management (PCIAM) exam and leapfrog up to level 6. This obviously involved a lot of regulatory rote learning and tedious talk about financial industry matters that I appeared to become obsessed with.
I bring you good news: it is over. I took the exam and passed it. I’m now officially qualified to do what I have been doing for years anyway. I’m not suddenly going to drop my fascination with fund performance and fees, but I can return to this column’s traditional role of scaring us all senseless about global macro-economic issues every now and then.
Before we get there, however, I must come good on the promise I made in my last column to point to some investment funds that are relatively small, as well as being run by someone intelligent and patient who doesn’t routinely overcharge.
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Finding a manager who has a hope of outperforming is more vital than ever at the moment. The latest Credit Suisse Global Returns Yearbook makes it absolutely clear that equity returns over the next 20-odd years are more likely to be disappointing than not – their best guess is a return of 3-3.5% in real terms.
Maybe it’s greedy to want more than that over the long term. But I do. Several of you have suggested we could get it by looking at Fundsmith, run by Terry Smith. I like his approach, but his fund isn’t exactly small any more – he is now managing £1.1bn plus.
The same goes for a few other suggestions proffered. The F&C Global Smaller Companies trust is great – it has performed well and it is cheap – but assets under management come to well over £300m.
So what does fit the bill? Unicorn UK Income has a fabulous record (since 2009 at least) and fulfils the brief of being small, with just under £125m worth of assets. However, I do wish it were a little cheaper. The management fee is 1.5%, which is high these days.
Another small fund that I like very much is the Tenax Fund from Church House Investments – it is a multi-asset fund and aims to give you long-term capital growth without too many hiccups along the way. It has only £27m invested, but has so far done what it promises, again with relatively high charges (1.25% plus a performance fee).
Sticking with Church House, I am very tempted by their Deep Value Fund. This one has a mere £8m in it so far but I like the manager Jeroen Bos’s concentration on a small number of special situation stocks. The fee is 1.25% – not low, but for such an itsy fund not outrageous.
Next up, the WDB Oriel UK Fund (£50m). It is small, well-run and its manager has what he calls a “fair bit of skin in the game”.
Then the Senhouse European Focus Fund. I’ve mentioned this here before but it fits nicely into today’s theme. It is quite new, has only £15m in it, is run by intelligent people and has done well in a time of crisis. The only irritating thing? It has a performance fee, and as regular readers will know, I hate performance fees.
I want to mention two more funds today. The first is the Kennox Strategic Value Fund. I wrote about this here about three years ago and it has done fabulously well since, rising over 60% in the past five years. It is bigger now and charges more than I like to think is acceptable. But I suspect the team members still have a few good years left in them yet. It is probably worth the extra 0.25%.
The second is the Guinness Global Equity Income Fund, the fund that I think most closely matches every single criteria I mentioned in my last column. It was launched in 2011, so is still small. But its managers are offering investors a cut price 0.25% management fee until the fund reaches £100m (it will go up to 0.5% after that). Guinness has a good record as an active manager and the fund also yields well over 3%. I like it.
• This article was first published in the Financial Times.
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