Fund charges have been in the spotlight this year, as investors increasingly look for lower-cost solutions. The rise in popularity of passive funds, which are cheaper than their active rivals, has facilitated this approach.
The Financial Conduct Authority (FCA) has waded in. Its asset management study has suggested a crackdown on excessive fund charges and the introduction of a single, transparent charge.
Clearly, investors must be mindful of the costs of their investments as higher charges eat into your returns. However, a search for the cheapest possible funds is fraught with danger – many won’t be up to scratch.
Using Morningstar data, we’ve found the five cheapest unit trusts that have earned a Gold Rating from our analysts. Funds are rated on five pillars: Process, People, Performance, Parent and Price. Gold-rated funds will generally score positively across all five areas.
While these funds aren’t the cheapest on the market, they are best-in-class offerings with a positive price pillar, so should give investors plenty of value for money.
Lindsell Train UK Equity
Ongoing charge: 0.52%
Star fund manager Nick Train has run Lindsell Train UK Equity since launch in 2006, He runs a high-conviction, concentrated portfolio of 25 companies. Morningstar analyst Simon Dorricott says Train’s process is differentiated and has proved successful over a number of market cycles.
He looks for unique, high-quality firms that offer a high and sustainable return on equity and low capital intensity and are cash generative. Its fees are kept low by Train’s buy-and-hold style, which means turnover, and therefore trading costs, are at a minimum.
The fund’s top holdings – Domestos-to-Magnum maker Unilever (ULVR) and Guinness brewer Diageo (DGE) – account for a fifth of the portfolio.
T. Rowe Price High Yield Bond
Ongoing charge: 0.66%
Manager Mark Vaselkiv has been in charge of T. Rowe’s high-yield strategy since 1996. Morningstar analyst Niels Faassen says Vaselkiv’s team is experienced, has proved its worth over time and has the ability to pick winning credits.
A number of prescient calls have helped the fund’s performance, including avoiding many telecoms stocks at the turn of the century, allowing it to post a small gain during the dotcom sell-off. Vaselkiv also missed the worst of the 2014-2016 energy slide.
In the current portfolio, Faassen notes that non-US high-yield bonds figure prominently, and the fund does not shy away from credit risk if the manager believes there’s a good risk/reward proposition.
Dodge & Cox Worldwide Global Stock
Ongoing charge: 0.69%
Employee-owned Dodge & Cox has one of the highest staff retention rates in the asset management industry, while its average fund manager tenure is 21 years. This means its management teams are highly experienced.
The team that manages this fund has two decades’ worth of experience. Morningstar analyst Fatima Khizou says they apply a value approach to stock selection and are not afraid of owning out-of-favour names. As a result, performance can be lumpy at times, but it’s well ahead of its benchmark index over longer periods.
Top holdings include a pair of pharmaceutical companies in France’s Sanofi (SAN) and Switzerland’s Novartis (NOVN), alongside Google owner Alphabet (GOOGL) and South African entertainment firm Naspers (NPN).
Capital Group New Perspective
Ongoing charge: 0.75%
This fund was only launched in October 2015, but Morningstar analyst Francesco Paganelli notes its identically managed US version has a multi-decade history of outperformance.
The portfolio comprises large multinational blue-chip stocks, mainly listed in developed markets, and the fund has an ability to profit from changes in global trade. The managers seek growth across the globe, but buy when it is mispriced or misunderstood, often hanging on through subsequent rough patches.
A quarter of its holdings are tech-focused, but the managers have sought firms with competitive advantages that give them a long-term edge. These include Amazon (AMZN), Facebook (FB) and Microsoft (MSFT).
First State Asia Focus
Ongoing charge: 0.94%
This fund, managed by 21-year veteran investor Martin Lau, is one of Morningstar’s favourite propositions for equity exposure to the Asia Pacific region. Lau and his 17-strong team look for quality companies that deliver sustainable growth at attractive valuations.
While this fund is only two years old, Lau’s stellar track record on the First State Asian Equity Plus fund gives Morningstar analyst Germaine Share confidence that Asia Focus will also strongly outperform over the market cycle.
Taiwan Semiconductor (2330) is the top holding, with India’s largest private sector lender HDFC Bank (500180) and Australian biotech firm CSL (CSL) next in line.
The fund is also attractively priced, says Share. All in all, it encompasses many traits that Morningstar values.
