Multi-manager total expense ratios (TERs) may fall as difficult market conditions force single mandate managers to look at fund of funds to increase distribution levels, Lipper research suggests.
Lipper’s latest fund fees report shows the balance of power has shifted to multi-managers following the £1.35bn single equity fund outflow in Q1 this year, compared to a the £250m inflow for funds of funds.
It says the current fund sales slump gives multi-managers increased bargaining power to negotiate lower feel levels for the vehicles in which they invest.
Lipper’s analysis shows the amount reduced on an underlying funds' management fees when used in a MM vehicle is 0.38%.
“Looking forwards, one can expect that the market conditions that are making it difficult to sell funds will prompt more UK fund managers to seek out funds of funds as a means of increasing distribution,” Lipper says.
“If this happens, it should put more power in the hands of funds of funds to negotiate greater reductions in fee levels for the funds in which they invest.
“This power can only be increased if financial advisers keep at least one eye on these products’ fee levels.”
The Lipper research also reveals average TERs are falling for external fund of funds, but internal fund of funds and manager of managers vehicles have climbed over the past year.
External funds of funds TER fell to 2.34% in spring this year, falling in each of the past three years.
Managers of managers and internal funds of funds TERs may have increased by 0.03% to 1.84% over the last year, but are down on the 1.91% seen in spring 2005.
Lipper suggests the manager of managers route is traditionally the most effective means to keep annual charges under control, as the outsourcing of fund management via mandates aims to end the layering of annual charges in a MM fund.
It also says MM managers may look to index tracking products, such as ETFs, to reduce underlying charges.
ETF TERs in Europe generally range from 0.2% to 0.75%, while TERs for many ETFs listed in the UK range from 0.3% to 0.4%.IFAonline
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