Baillie Gifford slashes fees on top performers

Baillie Gifford said the cost reductions are part of a continued strategy of offering active management at an attractive price whenever fund scale and ongoing costs allow. They follow a reduction in Baillie Gifford American's (GB0006061963) annual management fee from 0.65 per cent to 0.5 per cent in January.

Baillie Gifford Japanese's management fee has fallen from 0.65 per cent to 0.6 per cent, taking the already reasonable ongoing charge of 0.68 per cent for its B share class down to 0.63 per cent. The fund, which is run by top Japan manager Sarah Whitley alongside Matthew Brett, is one of the best performers in the Investment Association (IA) Japan sector over one, three and five years, and now one of the cheapest active Japan funds available to UK private investors.

"Any fee cuts for active funds are to be applauded, and when it is cuts to fees on funds with excellent performance even more so," says Darius McDermott, managing director at Chelsea Financial Services. "They didn't need to do it to attract inflows, given the strong returns. The standout Baillie Gifford fund for us is the Japanese fund but they have been in a real sweet spot recently across their equity franchise. [For example] Baillie Gifford Emerging Markets Growth (GB0006020647) is the top-performing fund in its sector over one year and Emerging Markets Leading Companies (GB00B06HZN29) is second. So we are seeing reductions in funds with excellent track records."

Baillie Gifford Developed Asia Pacific (GB0030492044), Baillie Gifford European (GB0006058258) and Baillie Gifford UK Equity Alpha (GB0005858195) funds will undergo the largest cuts, with their fees falling from 0.65 per cent to 0.55 per cent. This will reduce Baillie Gifford Developed Asia Pacific's B accumulation share class’s ongoing charge from 0.69 per cent to 0.59 per cent, making it one of the cheapest active Asian funds available to UK private investors.

Baillie Gifford European's B accumulation share class's ongoing charge falls from 0.7 per cent to 0.6 per cent and UK Equity Alpha's from 0.68 per cent to 0.58 per cent, making them among the cheapest active funds in the IA European and UK All Companies sectors.

However, when choosing a fund fees are not the only consideration.

"Fees are important as they form a part of the total return that investors receive," said Mr McDermott. "However, historic alpha generation, repeatability of process, fund size and whether a fund manager invests in their own funds are also among other very important factors. But if we had an equal opinion of two funds we would go for the one with the lowest fee."

Brian Dennehy, managing director at research and dealing site FundExpert.co.uk, added: "Our priority is fund performance net of charges, where performance is many multiples more important as a driver of net returns. Knowing a fund's charges tells us nothing about the likelihood of a fund being able to generate outstanding performance net of charges in the future."

Aberdeen New India Trust (ANII) is also going to cut its management fee. It charges 1 per cent of net assets but from 1 April 2018 it will charge 0.9 per cent on net assets up to £350m, and 0.75 per cent on those above that. The trust currently has assets of £309m and its ongoing charge is 1.31 per cent, but this could fall.

"The fee reduction reflects the ongoing pressure for investment trusts to reduce fees to remain competitive," comment analysts at Numis Securities. "The closest peer, JPMorgan Indian (JII) charges 1 per cent a year of gross assets and has an ongoing charge of 1.22 per cent, while India Capital Growth (IGC) charges 1.5 per cent of gross assets." It has an ongoing charge of 1.83 per cent.

Baillie Gifford has also introduced tiered investment fees on investment trusts it runs including top performer Scottish Mortgage Investment Trust (SMT) earlier this year, resulting in a reduction. Since 1 April Scottish Mortgage's annual management charge continued to be 0.3 per cent on its first £4bn of assets under management but on assets above that it is 0.25 per cent. The trust has net assets of about £5.9bn.

Scottish Mortgage Investment Trust has one of the lowest ongoing charges of all active funds of 0.44 per cent.