High charges that act as a “hurdle to performance” have seen the F&C Navigator Boutiques and Progressive funds downgraded by Morningstar from bronze to a neutral rating.
The F&C MM Navigator Boutiques fund has returned 29.1 per cent over the last year compared to 29.8 per cent in the IA Global sector, according to FE data, and 45.6 per cent over three years compared to 43.2 per cent in the sector.
The F&C MM Navigator Progressive fund has returned 21.6 per cent over the last year compared to 19 per cent in the IA Mixed Investment 40-85% Shares sector, according to FE data, and 32.2 per cent over three years compared to 26.6 per cent in the sector.
The Progressive fund is first quartile over five years and the Boutique fund is second quartile over five years.
Morningstar analyst Randal Goldsmith says they still have high regard for the managers Gary Potter and Rob Burdett and their “stable team”.
“Our conviction in these funds has been reduced by the high charges, which stand out as pricing across the market has been under downward pressure.”
Goldsmith says the managers are adept at uncovering new managers who show potential and aim to add value through asset allocation decisions, but warns the high equity weighting in the mandates makes that “difficult to achieve”.
He describes the high fees as a “tough hurdle to generate future outperformance”.
A BMO spokesperson says that it is “disappointed” with Morningstar’s downgrade, but says it is universally known that multi-manager funds exhibit higher charges than single strategy funds.
“However through this diversification, we believe investors enjoy the benefits of the expertise of fund managers who can evaluate funds that are most likely to generate attractive risk adjusted returns.”
The spokesperson adds: “Cost is just one factor however that should be considered. Ultimately it should be about value for money for investors. Failing to do so could lead to investors overlooking multi-manager funds, which could be to the detriment of generating investment returns.”