Nice fund, shame about the price

This small fund has an awful lot going for it. Unfortunately, it’s far too expensive.

Regular readers will know that I am always on the lookout for good funds. I don't think that there are many managers that are capable of regular outperformance, but I live in constant hope that over time a few may live up to their promises.

As far as I can see, there are a few characteristics that would give a fund the best of chances: it needs to be small; it needs to have a clear strategy; it has to be run by someone clever who has the focus and boredom threshold to enable them to stick to that strategy (constancy is really boring); it must have a value or a momentum bias; and it needs to be cheap.

I have recently come across one that fits in many of these ways: the TB OAM UK Equity Market Fund. It is tiny (under £3m) and only a year old, but run by David Urch, a manager with a good long-term record and a strategy that is mostly momentum (he calls it "harnessing positive change" but it's the same thing), but refers to valuations too.

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But much as I like it, there is an enormous problem with it: the fee. There is a management fee of 1.75% (so the total expense ratio , or TER, is even higher). The firm says it is planning to cut it soon (that's something to watch for). But right now it is nuts. It means that the fund has to outperform the market by 2%-odd every year just for you to break even. Very few funds have a record of being able to do that it's a big risk for an investor to take.

That's particularly the case when passive funds are just getting cheaper and cheaper only today ETF management firm Lyxor announced that it is cutting the TER on its FTSE100 ETF and its S&P500 ETF to a mere 0.15%.

These days active management fees of anything over 0.75% are beginning to look way too high to me (I'd still like firms to find a way of charging a flat fee, not one on the amount invested, but I'll come back to this another day). And 1.75% is just unacceptable.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.