Questions over RLAM fund targeting minimal outperformance

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Questions have been raised about an active RLAM fund that will target outperformance of 0.5 per cent and invest broadly in line with its benchmark.

The Royal London Asset Management announced it is launching a pair of global equity funds for the Waverton trio it snapped up at the start of the year.

The Royal London Global Equity Select fund will take an unconstrained approach with 25 to 40 holdings.

However, RLAM says the Global Equity Diversified fund will invest broadly in line with the sectors and countries of the MSCI World Net Total Return index and will only aim for 0.5 per cent outperformance over a rolling three-year period.

Investors face an OCF of 0.4 per cent for the minimal level of outperformance, which like the Global Equity Select fund is net of fees.

AJ Bell head of fund selection Ryan Hughes questions the timing of the launch, noting there were a number of similar funds launched in the UK five years ago that have since disappeared. He adds it also seems at odds with the FCA’s focus on costs.

Hughes says that funds targeting such small outperformance often end up underperforming.

“Why take the risk of possibly underperforming when you can have a passive,” says Hughes, noting investors can pay much less for for ETF or index fund alternatives with charges as low as 10 basis points.

“I’d rather have meaningful alpha from fund managers,” Hughes says. He does not reckon the fund will be helpful for those in the wealth management space.

RLAM’s Global Equity Select product, in contrast, will seek 2.5 per cent outperformance. Its OCF will be 0.7 per cent.

Tilney Group managing director Jason Hollands says the Global Equity Select launch makes sense given the popularity of the asset class in the last couple of years, but says he is “less convinced” about the Global Equity Diversified fund.

Hollands suggests it could have been designed with a more institutional client base in mind and therefore the twin launches are aimed at rolling out their global equity process across two distinct audiences.

RLAM chief investment officer Piers Hillier said in a statement accompanying the launch that the funds “reinforces RLAM’s commitment to active equity investing in areas where we believe we can add value for our clients”.

Both funds will be managed in using team’s “corporate lifecycle approach” to equity investing, which analyses a universe of 3,000 companies, assessing them for their lifecycle stage. 

They are aimed at wholesale and institutional investors and will be managed by head of global equities Peter Rutter, along with Will Kenney and James Clarke.

An RLAM spokesman says the diversified fund is aimed at clients seeking a “cost-effective active exposure to global equities with a relatively low tracking error”.