Baillie Gifford has placed the highest of any fund group in the open-ended North American, Japanese and European sectors for delivering top-quartile performance for the lowest cost.
The OCF – or ongoing charges figure – is a calculation of the operational expenses of owning a fund and includes a range of costs. It is calculated by taking the sum of expenses incurred during the past 12 months and dividing this by the average net assets over that period.
Looking first at the IA Japan and IA Japanese Smaller Companies sector, the fund that has delivered the highest returns for a top quartile OCF is Baillie Gifford Japanese Smaller Companies with gains of 154.16 per cent.
The cheapest top-quartile Japanese equity funds over 5yrs
Source: FE Analytics
It was also the cheapest fund on the list, alongside the Baillie Gifford Japanese fund, with an OCF of 0.63 per cent, compared with 0.94 per cent from the sector average.
The £889.1m fund aims to invest for the long-term in smaller, domestically-focused Japanese companies. However, its long-term approach means it can experience high levels of volatility in the short term.
Most of its exposure is to the industrials and information technology sectors, with manager Praveen Kumar looking for “a positive industry background, a durable competitive edge, strong financial characteristics, and management team interests that are aligned with those of shareholders”, according to Square Mile Investment Consulting & Research.
It added: “We believe the overall costs represents very good value for money as investors have access to a wellresourced team who have built a wealth of knowledge in what is a sizeable market where many companies have little analyst coverage.”
Another Japan-focused fund worth mentioning is Lindsell Train Japanese Equity, run by FE Alpha Manager Michael Lindsell. Its returns of 133.28 per cent over the same time frame were the second highest, while its OCF of 0.73 per cent was the third lowest, with only 10bps separating it from the top two spots taken by the Baillie Gifford funds.
The fund underperformed in June, which Lindsell attributed to a pick-up in performance from sectors where he has no exposure, “notably economically sensitive, cyclical and low margin companies”.
Moving on to Europe and Janus Henderson European Smaller Companies was the best-performer of those funds that made the top-quartile for both returns and cost, with gains of 94.18 per cent.
Its OCF of 0.85 per cent was the third highest of the six-name shortlist.
The cheapest top-quartile European equity funds over 5yrs
Source: FE Analytics
The £209.2m fund takes a bottom-up approach and splits its holdings into four categories.
‘Rockets’ have low capital returns, but a structural growth driver and strategy that deliver high sales growth; ‘quality growth’ companies have high returns and decent top-line growth; ‘mature companies’ tend to be more cash generative, but with cheaper valuations; and ‘turnaround situations’ are deep value stocks that are usually cyclically out of favour.
Baillie Gifford European, the only IA Europe ex UK fund on the list, was the cheapest with an OCF of 0.59 per cent. It made 75.02 per cent over the period in question.
Co-managers Stephen Paice, Moritz Sitte and Tom Walsh use a bottom-up investment process with the aim of producing returns of 2 to 3 per cent per annuum more than the fund’s MSCI Europe ex UK benchmark.
Its main geographic weightings are Germany and Sweden at just over 20 per cent.
On the other side of the geographic bias, Threadneedle Pan European Focus was the only fund on the list from the IA Europe inc UK sector.
Just over a quarter of the fund is invested in UK equities, with a currency weighting of almost 60 per cent in euros and just over 20 per cent in sterling.
The fund’s OCF of 0.9 per cent was the highest of those that made the list.
Moving on to the final sector and once again Baillie Gifford appears at the top of the list.
The cheapest top-quartile North American equity funds over 5yrs
Source: FE Analytics
Baillie Gifford American, managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson, produced a top quartile performance of 189.42 per cent, beating the other three funds that made the cut, and did so at the lowest cost with an OCF of 0.52 per cent.
Performance of fund vs sector in 5yrs to 30 June 2019
Source: FE Analytics
The fund has a concentrated portfolio of 30 to 50 stocks, with the team aiming to deliver outstanding performance “by harnessing the asymmetry of returns inherent in equity markets”.
“We believe we will maximise our chances of achieving this aim by identifying the exceptional growth businesses in America and owning them for long enough that the advantages of their business models and cultural strengths become the dominant drivers of their stock prices,” said the managers.
JPM US Small Cap Growth was the only IA North American Smaller Companies name to make the list.
It has made 136.34 per cent over the past five-years, with an OCF of 0.77 per cent.