Assessment of value reports will still leave investors with work to do
Thursday 20 Feb 2020 Author: Steven Frazer

New ‘value for money’ data is emerging that could make selecting funds easier for investors.

Since 30 September 2019, fund managers have been forced to start publishing ‘assessment of value’ (AoV) reports under a new UK regulatory crackdown. These documents are designed to illustrate each fund’s quality of service, performance, costs, and how well they’re doing against their competitors in a jargon-free way that is easy to understand for the average investor.

The investment fund industry currently manages around £1trn for individual investors, and a further £3trn on behalf of people’s pensions.

In an FCA investigation in 2017 that looked into the funds industry, the financial watchdog was scathing about how the whole sector operates.

‘We found that asset management products and services are complicated, objectives may not be clear, fees may not be transparent and investors often do not appear to prioritise value for money effectively,’ the study said.


The new rules will be hailed by many as a victory for the legion of retail investors in the battle to level the funds playing field with powerful financial institutions. In a study early last year the European Securities and Markets Authority, an independent body that safeguards the EU’s financial system, found that retail investors can pay up to twice as much in fund fees compared to institutional investors.

‘The criteria set out by the FCA are closely intertwined and essentially filter down to three elements; cost, performance against peers and quality of service,’ said Deloitte, the audit, accountancy and financial consultancy firm.

‘Where a fund is not providing overall value, firms will need to take prompt and meaningful actions as this part of the published statement is likely to receive the most scrutiny from regulators and investors.’

With AoVs due within four months of a fund’s financial year end, the first began trickling out this month for funds with a 30 September year end. While there is no enforced template for the reports, pacesetter Vanguard has set down a marker for others to follow by providing readable consolidated report for multiple funds.


Vanguard, one of the world’s largest fund management firms, used a neat traffic light system for the 29 UK funds reviewed, giving readers an easy on the eye snapshot.

‘Over 12 months, three years, five years and 10 years respectively, 93%, 96%, 92% and 75% of our UK-domiciled funds have outperformed their peers’, the Vanguard report stated clearly, before going into detail about what it sees as ‘good value’, how it measures performance and how it believes it could improve.

Handing its funds largely green lights (for ‘good value’), it did flag four with an amber signal for poor performance.

Vanguard’s report highlighted two active funds, its £65m Vanguard Global Equity (BZ82ZT6) and £37m Vanguard Global Equity Income (BZ82ZW9), for underperformance over one and three years.

In its passive range, the £2.2bn Vanguard FTSE Developed Europe ex-UK Equity Index (B5B71H8) and the £1.25bn Vanguard FTSE UK Equity Income Index (B59G4H8) failed to match benchmarks over five years.

Vanguard has promised that the four flagged funds would be closely monitored, while the group has modified fees to reflect the performance undershoot.

Investment management firm Rathbones assessed eight of its 35 funds and concluded that six of them were consistently meeting objectives, but the other two were failing. Rathbones admitted that in the five years to the end of September 2019, its £48m Rathbone UK Opportunities Fund (B77H7W3) returned 28% compared to its benchmark’s return of nearly 40%. It said the fund, which has an ongoing charge of 0.61%, will be closely monitored.

The other poor performer, the £118m Rathbone Global Alpha Fund (B8W5FR0), has been taken in-house by Royal London after it ‘consistently underperformed its benchmark’.


There is little doubt that value for money reports will be a useful new addition to the information for fund investors, but there are possible drawbacks, not least the sheer volume of data and access to it. For now investors have to go direct to each fund management firm for reports, a significant faff if you’re trying to compare funds across multiple providers.

In an ideal world every fund will make its AoV available to third parties, investment platforms like AJ Bell and Hargreaves Lansdown for example, and data providers like Morningstar say, giving investors access to all from a single provider. But that may or may not happen.

Added complexity comes from trying to compare suitable funds for individual investors, each with their own unique objectives, ambitions and risk sensitivities.

For instance, the Polar Capital Global Growth Fund (B42W4J8) has ripped its benchmark’s (the Dow Jones Global Technology Net Total Return index) performance to shreds, over three, five and 10 years, but it is also a high growth, higher risk fund, so will not be for everyone.

There is also nothing to stop fund management firms concentrating on their own particular strengths. For example, Vanguard highlights that its ongoing charges for its UK funds are ‘on average 73% cheaper than the average for their respective sectors,’ and that its funds are ‘typically ranked within the lowest 10% of their respective peer groups in terms of cost.’

This is largely because of Vanguard’s economies of scale, and while it is relevant information, it is worth bearing in mind that such data plays very much to Vanguard’s key low-cost model objective, which may not be crucial for every investor.

We understand that Aviva Investors and Merian Global Investors are expected to publish their AoV reports later in February, with Schroders and Artemis in April. Other big fund firms, like Jupiter, M&G and Fidelity are expected to follow suit later in the year.

‹ Previous2020-02-20Next ›