Fee pressure biting the legs of asset managers is not a new phenomenon, but before allocators race towards the bottom of the barrel, we thought it prudent to have a look at whether costs are as price elastic as all that. 

Using the top 10 most widely held equity funds in each region of our database, we ran tests against their respective IA sector average costs. 

Here are the results:

It turns out DFMs are choosing ever so slightly cheaper funds than the group average in the UK growth, Japan, and Asia ex-Japan regions. 

Meanwhile expensive tastes prevail in the UK equity income world but particularly on the continent: the average OCF for DFMs' European funds is 0.89, significantly higher than the IA sectoral average of 0.82.

While the difference in basis points looks marginal, all other things being equal then it may be worthwhile for allocators to scrimp when the situation allows. 

Naturally one caveat to our exercise is using FE's OCFs, which may not reflect the discounted rates available to those who hold a larger sway at the negotiating table. 

But in both DFMs’ preferred picks and the wider investment sector, Asia ex-Japan leads the way as the priciest region from which to select funds. 

Across both Asia and Japan, we found the cheapest pick across our DFMs’ favourites tended to be a Baillie Gifford product. 

Baillie Gifford Japanese and Baillie Gifford Japanese Income Growth each charge 62bps, while Baillie Gifford Pacific charges a modest 75bps in the high-end Asian sector. 

For comparison the average OCF in the IA Japan sector is 83bps while in the IA Asia ex-Japan sector it is 0.94bps. 

But cost alone is one of several factors when deciding whether to invest in a fund. It would be foolish to ignore performance, and that’s where these offerings come unstuck a bit. 

Baillie Gifford Japanese, once one of the most popular offerings in our database, saw three houses sell out of the fund across 2023. That’s probably due to it having delivered bottom–quartile returns over one, three, and five years. Ditto for Japanese Income Growth. 

On the other hand, its Pacific mandate has fared better with Q2 returns over one year and Q1 returns over five. 

As with buying a new pair of trainers, DFMs may find that cheese-paring isn’t everything. In fact, several of the allocators we’ve spoken to recently expressed willingness to pay a premium for managers they trust and for strategies they require. 

In a similar vein, Asset Allocator has recently had chats with a couple of thrifty MPS providers in LGIM and Timeline, both of which offer competitively-priced DFM fees of six and nine basis points respectively. 

LGIM's head of regional sales Antony Teare said asset management and MPS is a highly competitive market and that he believes the focus on fees as part of assessment of value will continue to force downward pressure on pricing.

This is a topic we will be revisiting in the coming weeks.