Look beyond fees for outperformance
Despite low cost diversified products' funds under management (FUM) growing by 271 per cent in just three years, IOOF is urging advisers to look beyond fund managers headline costs and instead focus on clients' underlying investment strategies.
IOOF's Australian equities portfolio manager, Dan Farmer said low cost diversified products were often unsophisticated and just tracked indices, which was not the best way to select an investment solution, nor was it in client's best interest.
Passive strategies would also not meet clients' objectives and that was what advisers and their clients needed to think about, he added.
"We don't think price and cost is best interest for clients".
IOOF surveyed five major funds that offered low cost diversified products, and found that their FUM grew from $4.5 billion to $16.7 billion from 2012 to 2015. IOOF also surveyed advisers and found that price was the central focus for client advice.
He said it was because there was increased fee awareness.
It was not just a trend in Australia, but Asia Pacific's low cost passive solutions also grew from 20 to 40 per cent, Farmer said.
However, clients would yield higher returns fund managers that offered low cost active management, and used more sophisticated products.
"Active management that moved away from benchmarks, outperformed".
IOOF developed a new multi series of funds that took advantage of institutional products and used smart beta and factor strategies. IOOF also accessed them via institutional mandates and that kept costs down, he said.
By taking advantage of new products, such as these, advisers and their clients could access excessive returns above passive, Farmer said.
Recommended for you
Retailisation of private markets such as evergreen funds may seem like appealing options for wholesale and retail investors, but providers risk undermining trust if their products are unclear.
Ethical investment manager Australian Ethical has seen its funds under management rise by a third over FY25 to close out the year at $13.9 billion.
BlackRock Australia’s head of intermediary distribution James Waterworth has taken up a new distribution role at an alternative asset manager, while Antipodes has hired a distribution director.
BlackRock’s iShares ETFs have reported a record first half for inflows, gaining US$192 billion in the past six months, to see overall ETF assets under management rise to US$4.7 trillion as it launches its first active ETF in Australia.
