Cover of MoneyWeek magazine issue no 511

To boldly go

5 November 2010 / Issue 511

What will make you rich in the next decade?

PLUS:

  • Buy this great value drugs giant
  • A beginner's guide to financial markets
  • The coup that could topple Gordon Ramsay

Excerpt

Should you be in equities?

I’ve been talking to Terry Smith again. The ex-chairman of broker Collins Stewart has just announced the formal launch of his fund management group, Fundsmith. And he has mildly disappointed me.

I wrote here a month or so ago that I hoped his launch would be the slap in the face the fund-management business needed to start really competing on cost. My dream? That when he announced his new fund it would come with a flat fee. That hasn’t happened. Instead, there is to be a 1% annual management fee (1.5% if you go via an independent financial adviser – that’s irritating too), which isn’t even particularly low – hordes of the best investment trusts charge less.

However, there is good news. First, Smith is working to keep other costs down. Trading can add another 1.5% or so to the costs of most funds. But by keeping the portfolio focused on 20 stocks or so, Smith reckons he can get that down to around 0.3%. He also hasn’t given up on the flat fee thing. When he has £200m-£300m under management, an amount he considers to be critical mass, he tells me he will revisit it. He says he wants the fund to get cheaper as it gets bigger, not more expensive. I’ll keep watching.

In the meantime, should you be one of the investors who pushes Smith towards his first £300m?

• Read the full editor’s letter here: Should you be in equities?

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