Active fund management (where fund managers pick which stocks or assets they will invest in) has come under increasing pressure in the past few years, as an historic decade-long bull market has seen stock markets race higher, while passive funds (those that track a stock market index) have had their own race to the bottom in terms of fees.
Today, it is estimated that passive funds now account for something between 37% to 45% of the US fund management industry. While passive market share in the UK is somewhat behind this at 17%, it can't be denied that, increasingly, investors have been turning to ETFs and passive funds - in large part because of their lower costs and doubts that active fund managers can consistently outperform their stock markets.
At Chelsea, we have always been proponents of active management – indeed, it is why we begin researching funds and highlighting those we believe to be best in their sectors. Active management can beat a benchmark, while passive management can, at best, match it.
With this in mind, we decided to take a look at which actively managed funds are achieving active excellence: top decile performance (net of fees) and bottom decile fees (cheapest) over the past five years.
Out of the thousands of funds available on the Chelsea FundStore, Baillie Gifford had no fewer than nine funds in the top 15 in terms of performance and low costs. These funds spanned UK to emerging market equities (with Chelsea Selection's Baillie Gifford Japanese among them) – proving that the company's whole equity franchise is good value for money.
Lindsell Train was also a very strong performer, with all three of its funds in the top 15, including LF Lindsell Train UK Equity, which is also on the Chelsea Selection.
|Fund name||5 year performance after fees||IA sector average performance||Fund OCF||Sector average OCF|
|Baillie Gifford UK Equity Alpha||63.85%||29.68%||0.57%||0.92%|
|LF Lindsell Train UK Equity||96.65%||26.68%||0.65%||0.92%|
|Franklin UK Equity Income||39.94%||24.91%||0.52%||0.91%|
|Lindsell Train Global Equity||178.25%||67.32%||0.65%||1.08%|
|Baillie Gifford International||110.64%||67.32%||0.60%||1.08%|
|BNY Mellon Global Income||92.28%||52.56%||0.80%||0.98%|
|Baillie Gifford Emerging Leading Companies||65.93%||36.12%||0.78%||1.13%|
|Baillie Gifford Emerging Markets Growth||63.49%||36.12%||0.79%||1.13%|
|Baillie Gifford Japanese||99.88%||70.37%||0.62%||1.00%|
|Lindsell Train Japanese Equity||138.86%||70.37%||0.73%||1.00%|
|Baillie Gifford Japanese Smaller Companies||146.54%||92.25%||0.62%||0.93%|
|Baillie Gifford Developed Asia Pacific||89.47%||68.11%||0.60%||1.21%|
|Baillie Gifford American||198.07%||98.84%||0.52%||1.00%|
|JPM US Small Cap Growth||139.35%||98.38%||0.77%||1.01%|
|Baillie Gifford European||78.12%||52.66%||0.59%||0.94%|
These funds are all bottom decile for charges and top decile for performance over the past five years. Data is from 30 August 2014 to 30 August 2019. Main share classes as defined by FE were analysed.
Commenting on the findings, Darius McDermott, managing director of Chelsea Financial Services, said: “While investors are generally happy to pay a little extra for consistently good active management, they will certainly not be pleased if managers are unable to justify their higher fees.
“However, this data shows that a number of fund companies are demonstrably passing on economies of scale to their investors – not only on funds that are hard to sell, but also those funds that are performing well and are popular. Baillie Gifford is a very good example of this, having cut the fees on a large number of its funds over the past year or so.
“Investors can see clearly, that good active management is available at extremely competitive prices.”
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's views are his own and do not constitute financial advice.