Active Funds Lower Fees to Compete with Trackers

Franklin Templeton have cut fees on three of their UK equity funds, making the Franklin UK Equity Income fund one of the cheapest offerings available

Samuel Meakin 23 August, 2016 | 2:40PM
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On July 1 2016, the annual management charge of the Franklin UK Equity Income fund, as well as the UK Rising Dividends fund and the UK Opportunities fund, was reduced from 0.75% to 0.45% .

Franklin also announced that the Ongoing Charge Figure, which includes other operating charges and expenses in addition to the AMC, will be capped at 0.55% from hereon.

This cut makes the Franklin UK Equity Income fund one of the cheapest offerings available to retail investors within the Morningstar UK equity income category. The reduction in the annual cost to investors will provide the fund with an added advantage over its rivals within this competitive peer group.

Why Have Franklin Done This?

Franklin stated that the move was in recognition of the growing need amongst investors for truly active management at lower costs. In our opinion, the magnitude of the reduction now sets this fund apart from its peers in terms of costs and we commend Franklin, and specifically their UK Equity team, for their efforts in reducing the fee burden on investors in these three funds.

What Do Fund Analysts Think?

At Morningstar, we have long been advocates of the predictive power of fund fees and their impact on performance outcomes. There are many factors to consider when investors are going through the fund selection process. However, as the only certainty in an otherwise uncertain environment, a fund’s total cost is the surest and most proven indicator of future fund returns.

Our studies have demonstrated how dependable fees are as a predictor of future success. Russ Kinnel's 'Predictive Power of Fees' revealed that funds in the lowest quintile of the peer group in terms of costs are more likely to go on to outperform than their higher-cost peers over the following five years.

We already have a positive view on the UK equity income strategy at Franklin, run by a highly experienced manager in Colin Morton. We also think highly of the UK equity team at Franklin. This move serves to increase our conviction in the longer-term prospects of the UK Equity Income fund, given the tailwind it will provide to net returns to investors going forward. The fund's Morningstar Analyst Rating is upgraded to Silver.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Samuel Meakin  is a fund analyst for Morningstar