Milford Asset Management plans to knock off up to 15 basis points from its global equity fund fee while swapping the absolute return target for a more conventional share benchmark.
In a note to clients, Milford says from October 1 this year the $430 million plus Global Equity Fund will adopt the MSCI World Index (50 per cent hedged to the NZ dollar) as the benchmark and hurdle rate for calculating performance fees.
Currently, the Milford fund targets the NZ cash rate plus 5 per cent with performance fees charged on returns above that.
“A share market index benchmark (rather than the current absolute return benchmark) is consistent with the typical global equity funds in the New Zealand managed funds’ market,” the note says. “While the change to a relative benchmark has the potential for higher returns over time, it also increases the potential for greater fluctuations in the unit price over the short to medium term.”
In a guidance note issued last month the Financial Markets Authority (FMA) ruled out the use of absolute return benchmarks in formal fund disclosure documents.
At the same time, the $5 billion plus manager will move the global shares product to a base fee of 1.4 per cent that includes external manager and exchange-traded fund (ETF) fees. Milford estimates its current base fee (of 1.12 per cent) plus external manager and ETF costs equates to about 1.50-1.55 per cent. With performance fees the fund charged 2.2 per cent for the 12 months to the end of March.
Milford invests about half of the global shares fund in direct equities and up to 45 per cent in ETFs and third-party managers (split almost equally) with the remainder in cash.
External managers currently include Wellington, Vontobel, GMO and Magellan while the iShares Russell 2000 comprises roughly 3.2 per cent of the Milford international equities fund.
Figures on Disclose show the fund – run by portfolio managers Felix Fok and Stephen Johnston – returned over 7.7 per after fees and tax over the last five years against a gross market index increase of 11.85 per cent.
The Milford fee cut follows a raft of fund price reductions across the NZ industry. For example, Pie Funds announced a plan to drop all performance fees from next April in lieu of ‘all-in’ fees ranging from 0.7-1.85 per cent. Pie also launched a fixed fee KiwiSaver scheme last month.
Also in July, the Craigs Investment Partners funds arm, QuayStreet, lowered the fee for its Socially Responsible Investment Fund to 1 per cent from the previous 1.25 per cent.
Likewise, in March this year the SBS Bank-owned Lifestages KiwiSaver scheme reduced fees for two of its underlying funds by 5-10 basis points due to economies of scale.
“The higher funds under management also mean that we have reduced in-fund costs for these Funds by up to 0.10% per annum,” the Lifestages report says.
“This means that we expect to be able to deliver further reductions in charges of around 0.20% per annum for the 2018-2019 financial year for each member invested in these Funds.”
Lifestages manages about $300 million.