Manager Research

Fees:

Coronation have announced changes to the fees charged on their Balanced Defensive and Capital Plus funds to simplify the fee structure and align the methodology with that of their flagship multi-asset offering Balanced Plus.

Both funds charged a 1% (1.4% for retail, all fees quoted ex-vat) flat fee for the clean P-class available on platforms. The fees were discounted to 0.35% if the funds had negative performance over any rolling 12-month period in the case of Balanced Defensive and rolling 24-month period in the case of Capital Plus. Going forward, the fees will be dropped by 0.15% to 0.85% (1.25% for retail) and the conditional discounts will be phased out. The lower fees are applied retrospectively from the 1^st of October 2017, while the discounts will continue to be applied up until 30 September 2018, in case of any negative performance over this period.

We see these changes as positive for clients. The funds never lost capital over the specified periods in the past and so the discounts have never been applied. Given the risk aware management of these funds, we would expect the ongoing benefit of the 0.15% reduction in fees to outweigh the low probability of the discounts being applied.

Benchmarks:

Coronation manage Balanced Defensive and Capital Plus with a focus on providing real returns to clients and protecting capital. To better align the funds’ mandates with these objectives (real returns and capital protection), Coronation have changed the benchmarks and strategic limits on the funds as follows:

• Balanced Defensive: Fund performance will be measured against an inflation-linked objective effective 1 November 2017 and the benchmark will therefore be changed from cash plus 3% to inflation plus 3%. This does lower the implicit total return objective of the fund, given that cash generally yields about 1% over inflation. The complimentary objective of not losing capital over any 12-month period remains unchanged. The maximum exposure to risk assets (equities, property and commodities) has also been increased from 40% to 50%, although equity exposure remains limited at 40%.


• Capital Plus: The fund’s inflation plus 4% return target remains unchanged. To reflect the higher growth objective of Capital Plus compared to Balanced Defensive, the fund will aim to protect capital over any 18-month period going forward, up from 12-months before. The maximum exposure to risk assets in this fund has been increased from 50% to 60%, with equity exposure limited at 50%.

Although the changes to the strategic limits allow the managers to allocate more to risk assets if they want to, we don’t expect the funds to be managed differently than before. Instead, the changes make it easier to understand and differentiate between the offerings, which is positive.