Terry Smith, the chief executive of Tullett Prebon, has launched a high-conviction global equity portfolio for his Fundsmith business, encountering mixed reaction from investors.
Smith himself says with a 1% annual management charge (AMC) to retail investors buying direct, the fund has low charges and will improve performance through a concentrated approach focusing on fundamentals.
Smith has invested £25m of his own money, giving the fund immediate economies of scale
Smith has invested £25m of his own money, giving the fund immediate economies of scale.
However, the AMC is a standard 1.5% for retail investors buying through advisers, with a standard 50 basis point commission for advisers.
Meera Patel, a senior analyst at Hargreaves Lansdown, says Fundsmith’s encouragement to buy direct may end up making advisers secondary in the distribution process. (article continues below)
She warns this may cause difficulties for the fund as advisers are due to remain a key part of the distribution chain, especially after the retail distribution review.
Although the fund has no initial charge, Patel points out retail investors generally do not have to pay an initial charge in any case going through a major discount broker or IFA.
She also observes the high-conviction, fundamentally driven investment strategy is deployed by a number of investors.
The difficulty is using the strategy to provide an outperforming retail fund in practice, she says, pointing out that a number of other players have a much longer retail track record in global equities using a similar approach.