Lion Global launches low-cost active funds; total expense ratio at 0.5%

LION Global Investors (LGI) has launched an actively managed multi-asset fund series with a total expense ratio (TER) of 0.5 per cent, in an effort to help investors get more bang for their investment dollars by reducing costs.

LGI chief executive Gerard Lee said the Lion Global All Seasons Fund series are targeted at "underserved institutional investors" with assets of less than S$5 million. This segment of investors is understood to include charities and clan associations.

The funds are also targeted at individual investors, but are available only through OCBC and three online channels.

The average TER of the Morningstar Global Flexible Allocation category of funds is 1.5 per cent. Said Mr Lee: "Normally, large institutions can bargain the fees down. Through the launch of this fund, we think of our purpose in finance - to help meet long-term savings goals.

"We're not greedy and we feel we need to walk the talk. People are fed up. There are too many intermediaries in the food chain. We need to demonstrate to investors that (low fee) is possible. We're prepared to make very little or not at all in the initial months or years. We want this fund to be seen as the go-to fund for all seasons."

There are two versions of the fund. The Standard fund is 70 per cent in fixed income and 30 per cent in equities. The Growth fund is 70 per cent in equities and the balance in fixed income. The portfolios are allocated into five Lion Global unit trusts and two exchange-traded funds (ETFs). The ETFs are the Vanguard S&P 500 ETF and DB x-trackers Euro Stoxx 50 ETF.

The funds' equity allocations will be GDP weighted, rather than the market-cap weighting of most indexes. Based on GDP weighting, for example, Asia-Pacific ex-Japan would have a share of 26 per cent compared to 13 per cent in a market cap-weighted portfolio. The US would have 25 per cent and 53 per cent, respectively. 

Lion Global hopes to attract S$100 million in assets by year-end. Last year, Lion Global teamed up with Philip Capital Management to launch an ETF tracking a basket of Singapore-listed real estate investment trusts. They raised initial assets of S$100 milion, and this has grown to S$140 million.

The funds are available at fund platforms iFast, Navigator and Poems at no sales charge. Singapore's fund distribution scene has been dominated by banks, which take the lion's share of the sales charge, and a portion of annual management fees.

Very low fees will leave little to pay intermediaries, which is why it is an uphill climb for managers to launch low-cost alternatives. 

Assuming a 5 per cent rate of return, S$10,000 invested in a portfolio with TER of 0.5 per cent would generate a cumulative return of 140 per cent, or annualised return of 4.5 per cent.

In contrast, a portfolio with TER of 1.5 per cent would generate a cumulative return of 97 per cent or annualised return at 3.5 per cent. 

Mr Lee said: "The term "all seasons" is symbolic of the fact that the fund is designed to better weather all economic cycles ... With the TER of the fund capped at 0.5 per cent per annum, investors will incur a lower cost of investment and this would increase their odds of earning better returns."