Fixed income specialist Kames Capital is the latest asset manager to lower the fees on funds, just weeks after Vanguard cut the price of 36 of its funds.
From next year, annual management charges (AMC) and ongoing charges will be reduced on five of its UK-domiciled bond funds and four Ireland-domiciled funds, which will affect the “B” share class.
These include a number of funds rated by Morningstar analysts, such as Kames Sterling Corporate Bond fund, which has a Neutral Rating – its AMC is dropping 15 basis points to 0.35% and the ongoing charge figure (which includes the costs of buying and selling holdings among other additional expenses, as well as the AMC) is dropping 15 basis points to 0.39%.
Morningstar analyst Louise Babin said earlier in the year (before this latest cut) that the fund’s fee is slightly lower than similar share classes in the category “but not enough to give it an edge over its peers”.
Meanwhile, annual management fees on the Neutral-rated Kames Investment Grade Bond fund are falling from 0.75% to 0.50%, the biggest drop among the UK-domiciled funds, while the ongoing charge will fall from 0.77% to 0.52%.
Kames said the move, which will apply to new and existing members, is designed to ensure its fund range remains competitive and provides value for money for investors. It follows the decision earlier in 2019 to slash the fees on its Kames Absolute Return Bond fund from 0.65% to 0.30%.
Bond funds, both active and passive models, have been popular this year as investors have ploughed money into “safe-haven” assets, despite paltry and in some cases negative yields on offer.
Passive vs Active Bond Funds
Vanguard cut fees in October, with some of the biggest cuts coming in its fixed income funds. The Vanguard UK Investment Grade Bond Index Fund, which has a Bronze Rating from Morningstar, charges 0.15% on an ongoing basis – for comparison, the actively managed Kames Investment Grade Bond fund will have an ongoing charge of 0.52%. The five-year annualised return of the Vanguard fund is 4.74%, according to Morningstar data, while the Kames investment grade bond fund has posted annualised returns of 4.55%.
With investor flows into bond funds increasing this year, the debate is whether to go active or passive. Morningstar’s Jose Garcia Zarate, associate director of passive strategies research says: “Whether active managers are able to add value consistently over the long-term is debatable. Aside from the mistakes that they may end up making in their selection, active bond fund managers also must overcome a very important advantage of passive funds, namely their low cost.”
He argues that UK investors looking for exposure to UK government bonds or gilts may be better off going down the passive route as the “as the opportunity set for active managers to add value is rather limited”.
Vanguard’s move came after Fidelity introduced a “fee-free” range of funds in 2018 in the US. While the fund firm has so far not rolled this out in Europe, the move confirmed the direction of travel in the fund space towards ever-lower fees.
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