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10 Gold-Rated Funds with the Lowest Fees

Research shows that investing in funds with low fees gives you a higher chance of outperforming the market

Alanna Petroff 13 December, 2012 | 5:04PM

It’s common knowledge amongst experienced investors that investing in funds with low fees gives you a better chance of outperforming the market, whilst funds with higher fees generally struggle to outperform.

According to various studies conducted by Morningstar, funds with expense ratios that are in the cheapest quintile compared to their peers have a much better chance at outperformance compared to the most expensive quintile of funds.

To help UK investors find high-quality funds with the lowest fees, we conducted a search of our Morningstar database to reveal which Gold-rated funds have the lowest fees. The search included both Gold-rated investment trusts as well as Gold-rated open-end funds such as OEICs and unit trusts.

A Gold rating indicates that our Morningstar analysts think very highly of the fund and expect it to outperform its peers and relevant index over a full market cycle of at least five years.

Below are the results from the database search:

1. City of London Investment Trust (CTY)
Ongoing Charges: 0.45% per annum
Manager: Job Curtis

2. Temple Bar Investment Trust (TMPL)
Ongoing Charges: 0.50% per annum
Manager: Alastair Mundy

3. Scottish Mortgage Trust (SMT)
Ongoing Charges: 0.51% per annum
Managers: James Anderson and Tom Slater

4. Raiffeisen-Euro-Rent R VT Fund (Analyst Research)
Total Expense Ratio (TER): 0.59% per annum
Manager: Martin Hinterhofer

5. BlackRock Smaller Companies Trust (BRSC)
Ongoing Charges: 0.69% per annum
Manager: Mike Prentis
(Keep in mind that this fund also charges a performance fee to investors if the fund outperforms its benchmark index. In the last year, this meant that the total Ongoing Charges, including the performance fee, were 0.97%. In the year before that, the total Ongoing Charges were 1.0%. Ultimately, this means that investors pay more than the headline 0.69% number if the fund outperforms. For more detailed information on the fees for this fund, click here.)

6. Edinburgh Investment Trust (EDIN)
Ongoing Charges: 0.72% per annum
Manager: Neil Woodford
(Like the BlackRock trust above, this investment trust also charges a performance fee when the fund outperforms its benchmark, the FTSE All-Share index. Therefore, total Ongoing Charges from last year were 1.12%. For more detailed information on the fees for this fund, click here.)

7. Murray International Trust (MYI)
Ongoing Charges: 0.75% per annum
Manager: Bruce Stout
(This fund also charges a performance fee if the fund outperforms its benchmark index. For more detailed information on the fees for this fund, click here.)

8. Aberforth UK Smaller Companies Fund (Analyst Research)
Total Expense Ratio (TER): 0.86% per annum
Manager: Management team

9. M&G Strategic Corporate Bond Fund (Analyst Research)
Total Expense Ratio (TER): 0.90% per annum
Manager: Richard Woolnough

10. Veritas Global Focus Fund (Analyst Research)
Total Expense Ratio (TER): 0.91% per annum
Managers: Andrew Headley and Charles Richardson

BONUS #11: We have two funds that are tied for the #11 spot:

11. Invesco Perpetual Monthly Income Plus No Trail Fund (Analyst Research)
Total Expense Ratio (TER): 0.94% per annum
Managers: Paul Causer and Paul Read

11. Invesco Perpetual Corporate Bond No Trail Fund (Analyst Research)
Total Expense Ratio (TER): 0.94% per annum
Managers: Paul Causer and Paul Read

(While the headline of this story originally promised 10 Gold-rated funds with the lowest fees, two #11 funds were added on as a bonus, since the overall fees on some of the investment trusts were actually higher than the original ‘price tag’ indicated due to additional performance fees.)

“It’s no surprise to see a number of investment trusts in this list as the trust structure has historically enabled lower costs,” said Jackie Beard, head of Morningstar’s investment trust research. “While that might not continue after the Retail Distribution Review comes into effect in 2013, the closed-end nature of these funds is conducive to long-term outperformance, not least because managers aren’t distracted with daily in- and outflows of cash.”

For those who want to do more research into fund fees in the future, keep in mind the following guidance:

  • Investment trust fees have been renamed from Total Expense Ratio (TER) to Ongoing Charges, effective May 2012. These charges represent the year-on-year fees an investor can expect to pay for the management of that fund. Performance fees are not included in Ongoing Charges, so Morningstar shows Ongoing Charges both including and excluding the performance fee, where applicable.
  • Open-end funds such as OEICs and unit trusts will soon be moving to the same calculation method for their total charges, and the Total Expense Ratio (TER) will be replaced with Ongoing Charges. The same principle applies regarding the exclusion of any performance fees that they may charge.


To find fees information for other funds, simply search for a fund using the search box at the top of the site, or use the Fund Quickrank tool for open-end funds and the Closed-End Fund Quickrank for investment trusts. Once you have found the fund you are looking for, choose the ‘Fees’ tab on the left-hand side of the page to see more detailed information about fund fees.

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About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.