Executive summary
In this Assessment of Value report we examined six of our funds, some of which are specialist in nature and predominantly owned by institutional and charity investors. While that did influence some of the conclusions we arrived at, it also enabled us to decide what actions we could take to better provide value in certain funds for the smaller retail investor base.
In analysing the funds we followed the seven-factor criteria as outlined by the UK regulator, the Financial Conduct Authority (FCA).
We also supplemented the data in these areas where we could, using the data and expertise from three different independent consultants. This included a London-based fund research house specialising in the calculations of fund fees and expenses, a direct-to-consumer research firm and a specialist asset servicing cost and quality of services provider.
To make this analysis easier to understand we segmented the FCA's criteria into four broad categories: cost, performance, quality of service and fair treatment of investors.
THE DATA
We used a matrix of 30 different data sets to arrive at our conclusions. This data covered different time frames, according to what was being measured. Non-performance-related data was assessed over the 12 months to 31 March 2020. All performance-related data covers the varied time periods stated in each of the fund's individual objectives, as outlined in the prospectus. All had an end date of 31 March 2020.
What did we find?
To summarise our findings we used a ‘traffic light’ system.
CONCLUSIONS
Four of the six funds included in this report were given an overall green rating as we believe they are providing value to investors.
Three funds were rated green in all categories.The Newton Managed Targeted Return Fund had one area highlighted for further action but overall we rated it as offering value as it did so across more than 85% of the criteria we examined. (See the All other funds chapter for more information)
We have given the Osprey Fund an overall amber rating as we feel further action needs to be taken. We will shortly be writing to shareholders, updating them on plans for the future of the fund.
Based on our analysis, we also concluded the Absolute Insight Fund warranted an amber rating. While our breakdown highlighted areas of concern, we also identified areas of value.
Based on this analysis we are looking to lower the fees on some of the retail share classes for the Absolute Insight Fund.
Please go to the individual fund chapters of this report for more on our assessment of the Osprey Fund and Absolute Insight Fund.
In this section we explain what we analysed, how, and the conclusions we reached. See following chapters for further detail on the individual funds and the steps we intend to take to redress any problems identified.
PERFORMANCE
This is not just about the amount of money gained or lost. It also considers the impact of charges, the time frame commensurate with the published objective and performance relative to peers or a benchmark index. In other words, has the fund performed as expected? Did it meet its objective(s)? For instance, if a fund seeks to achieve a rising level of income distributions and doesn’t, after fees, then we looked deeper to see why. We used data from external consultants to provide peer analysis to help with this relative assessment.
Our findings: All of the funds’ performance objectives were examined and updated in 2019. The objectives of the six funds are either capital growth alone or a mixture of capital growth and income and a few have multiple aims or targets. We believe they are all clear and transparent. Four of the six funds met these objectives. However, we rated both Absolute Insight Fund and Newton Managed Targeted Return Fund as amber for performance as they did not achieve all of their objectives.
QUALITY OF SERVICE
We, as the board governing these funds, are ultimately responsible for the service provided by BNY Mellon Fund Managers Ltd and by each of our appointed delegates. In assessing whether or not each of the funds examined offers good value in this area we looked at a number of criteria. These included:
Our findings:
All funds were rated green. Based on input from a variety of sources both internal and external, we believe the service our funds receive from us as well as from our service providers is good.
1 Please note our 2020 survey was underway at the time of our analysis and writing of this report. As such its findings and views were not available for use at this time.
FAIR TREATMENT OF INVESTORS
Investors in our funds should expect fair treatment on a number of levels. Are we actively trying to get a better deal for them and managing their costs? Considering many fund expenses are fixed, and others have tiered pricing structures, typically the bigger it is, the lower the associated expenses per share or unit. As our funds grow in size, have we passed on any savings we have established?
As part of this criteria, we also examined whether investors are accessing our funds in the right way. Each fund has different classes of shares or units (depending on whether the fund is structured as an open-ended investment company (OEIC) or unit trust). Each of these in turn has differences in areas like fees or minimum investment levels. Which share or unit class you buy often depends on your investor type (retail or institutional) and investment objective (such as income or income reinvested).
Our findings: Through the review period covered, none of the funds analysed grew to a level that could realise greater economies of scale. In fact most shrank in size. However, all six funds feature a tiered asset servicing pricing structure. This means each has the ability to pass on savings achieved through growth in asset size, as and when it is possible to do so. BNY Mellon Fund Managers Ltd also carries out regular service reviews and often renegotiates its fees with various counterparts, which was done prior to this review period.
Therefore, while there were no economies of scale changes or reductions, we felt having the mechanisms in place was enough to warrant a green rating. Outside of economies of scale, we also confirmed investors in these six funds are in the correct share or unit class given their respective investment sizes and eligibility.
COSTS
A variety of costs make up what investors pay for an investment fund. Together they form the Ongoing Charge Figure (OCF) – the main day-to-day costs of running a fund. (If a fund has an OCF of 0.7%, then for every £1,000 you invest, £7 goes on costs such as fund manager's fees and services like administration and fund accounting.)
For this report we reviewed each component included in the OCF – those incurred by BNY Mellon Fund Managers Ltd as well as those paid to providers for services such as custody. Please see our glossary for a description of various services provided to funds.
Using the FCA’s guidelines, we sought to determine:
Our findings
We gave four amber ratings (one of which is half red representing the difference between the value present for institutional and retail investors) to the components that make up our assessment of costs. The cost-related amber ratings applied to Absolute Insight Fund and the Osprey Fund only.
We have found both of these funds tend to have high, or higher, charges than peers. In addition, disparity exists between fees paid by institutional and retail investors relative to some comparable competitor products. This is why we awarded a dual rating to the Absolute Insight Fund for comparable market rates.
Further action is required on both the Absolute Insight Fund and the Osprey Fund to improve the net-of-fees returns.
Outside of these costs incurred from management fees, we believe all the funds pay a fair price for services. This is based on our consultants’ analysis as well as our own. Furthermore, if the fees for any services exceed those expected to be covered by the fund, BNY Mellon Fund Managers Ltd subsidises these where allowed under UK regulations. This is to ensure investors pay a fair amount.