Franklin and Woodford Lead the Way for Low Fund Fees

UK equity fund providers Woodford and Franklin have cut costs to investors - and Morningstar analyst Pete Brunt expects other groups to follow

Emma Wall 22 August, 2016 | 3:21PM
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Emma Wall: Hello, and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and I'm joined today by Senior Fund Analyst, Pete Brunt, to talk about fees.

Hi, Pete.

Peter Brunt: Hi, Emma.

Wall: So, some positive news from Franklin Templeton. Franklin U.K. Equity has seen its fees cut considerably and in turn Morningstar analysts have upgraded the fund.

Brunt: That's right, yeah. So, it was a decision taken quite recently to cut their ongoing charge from just over 80 bps down to capping it at 55 bps. So, it could actually be lower than that. It's capped to 55 bps which is really quite a big cut. So, we view that positively.

Wall: Let's take a moment to talk about the importance of fees. 30 basis points may not seem like much but actually compounding it's a big impact.

Brunt: It certainly is, yeah. So, if you were to take the sector as a whole, it's significantly cheaper than the median fee, which is, looking at clean share classes post-RDR, roughly 90 bps. So, it's really significantly cheaper. And as you know, we've done the research that's looked into this in the past and it's one of the strongest predictors of outperformance over the long term. So, if you were to take funds with the fees in the cheapest quintile, they are more likely to outperform those in the most expensive quintile over the next five years.

Wall: And you've mentioned there what the average fee is for this sector. It's 90 basis points. Are there any other fund houses that are under that though?

Brunt: Yeah, there's a few. And one that's in the news at the moment Woodford Equity Income, that fund has also got fees that are lower than the average. The most commonly available share class is trading at 75 bps which is obviously cheaper than the average. So we take a positive view on that. What's interesting about that is they've also taken a move to change their fee structure.

So, they've now incorporated research costs into their annual management charge, so their ongoing charge is the same as their annual management charge. So, they're really going for the transparency in terms of what investors are actually paying for when they invest in the fund which we also take a very positive view on.

Wall: So, you've got two big fund managers there, I mean, Woodford Equity Income among the biggest in the sector, taking a very progressive approach to fees. What does this mean for the rest of the U.K. equity sector? Can we expect the others to be dragged down with it?

Brunt: Well, obviously, there's been pressure not only from these guys we've just mentioned today but also from ETFs and passive funds to bring those costs down and I think investors are now looking – with these two funds leading the way investors are now looking for others to follow suit. So, I think we should be seeing other fund houses take serious steps to decrease their fees going forward.

Wall: Positive news?

Brunt: Yes.

Wall: Pete, thank you very much.

Brunt: My pleasure.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
FTF Martin Currie UK Equity Income W Acc2.82 GBP-0.07Rating
LF Equity Income C Sterling Acc0.98 GBP0.00

About Author

Emma Wall  is former Senior International Editor for Morningstar

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