Jupiter Absolute Return to axe performance fee
The poorly performing Jupiter Absolute Return Fund is axing its 15% performance fee from 1 November, two months after new manager James Clunie is due to take the helm.
The fund, which currently sits in the fourth quartile of its sector realised a return of just 0.35% during the last calendar year, compared to the 30.64% return racked up by the top-performing fund in the sector, the CF Odey Absolute Return - which has a performance fee of 20%.
Performance fees are paid by investors to a fund manager when the fund generates a positive return. They are calculated as a percentage of investment profits and kick in at a certain pre-agreed level.
Jupiter Asset Management told Moneywise the decision to axe the fee was not triggered by the fund's poor returns but to bring it in line with the rest of the group's unit trusts that do not levy the fee - except for the International Financials fund.
It also pointed out that the Absolute Return fund's performance fee had only been paid out once, and only by institutional investors, due to its high watermark.
Juliet Schooling Latter, research director at Chelsea Financial Services, is pleased to see the fee removed.
"I'm generally not a fan of performance fees, especially if the 'hurdle' is low. For example, I expect an active manager to outperform by more than 2%. It is what they are paid to do out of standard annual costs. It appears the new manager, James Clunie is not a fan of them either, so I welcome the move," she said.
However, rather than the Jupiter Absolute Return fund, Chelsea Financial Services prefers Standard Life Investments' Global Absolute Return Strategies, currently sitting in the second quartile of its sector, and the Newton Real Return fund, sitting in the first quartile. Neither have performance fees.
Schooling adds: "As with all debates around cost, value for money should not be forgotten. It's returns after charges which are important and if a fund is more expensive but delivers consistent outperformance, investors may feel it is worth paying a little more for."
Usually charged as a percentage of returns for performance above a specified benchmark, such as an index. The fee can range from 10% to 20% of total investment returns on a low starting benchmark such as Libor and investors could find themselves paying extra fees for merely average performance. Note that these funds do not compensate investors when the manager underperforms the benchmark.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.