The data from Australian Fund Monitors revealed that of three long-only Australian equity funds that charged zero management fees and significant performance fees, only one had significantly beaten the ASX 200 Total Return benchmark over one-year and three-year periods.
“All of these funds have a performance fee greater than 25 per cent,” the research house said.
At the other end of the scale, funds that charged significant management fees also performed poorly, with seven of the 15 funds that charged more than 1.35 per cent failing to beat the three-year benchmark.
However, the firm noted that “choosing a manager with a performance fee, and therefore some skin in the game, does make some difference”.
Funds with a combination of performance fee and management fee seemed to perform the best, with 74 per cent of funds that charged a performance fee of more than 10 per cent beating the one-year benchmark and 65 per cent beating the three-year benchmark.
In contrast, among those funds that didn’t charge a performance fee, 60 per cent failed to beat the benchmark over a three-year period.
The research house noted that the percentage fee charged among those that did charge a combination fee “does not make much statistical difference” when it came to performance against one-year and three-year benchmarks.
“For advisers and investors looking to choose an active manager, it is important to look deeper than just performance,” the firm said.
“Consistent high-quality active managers do not have to have high fees and can offer great value for money if you are willing to do some analysis.”
