There is a 1.57 percentage point difference between the most expensive fund sector and the cheapest, FE Trustnet research suggests, while the total cost of some funds is approaching 10 per cent. 
One of the most closely watched elements of the asset management industry is fund fees and the disclosure rules under MiFID II mean that managers have to be more transparent about their costs and charges than ever before.
In this article, we have reviewed the charges of every fund in the Investment Association universe to determine which have been the most expensive, on average, for their investors.
We have looked at three main costs: the ongoing charges figure (OCF), which includes expenses such as the annual management charge, registration fee and custody fees; the transactional cost ex-ante, or the expenses that arise from selling or buying investments; and the incidental cost ex ante, which includes any performance fees levied in the recent past.
When it comes to the 37 sectors in the Investment Association universe, the average combined costs and charges for the industry amounts to 1.13 per cent, on the back of an average OCF of 0.97 per cent, average transaction costs of 0.19 per cent and average incidental costs of 0.03 per cent.
Some sectors have much higher average costs, however.
IA China/Greater China tops the list with its 1.79 per cent overall cost – compared with just 0.22 per cent from IA Short Term Money Market. The IA China/Greater China sector’s overall cost comes from a 1.35 per cent OCF and 0.44 per cent in transaction costs; the average incidental costs are zero.
Within the sector, there is a wide range in costs with Matthews China Small Companies being the most expensive. Its 1.5 per cent OCF and transaction costs of 1.81 per cent result in a combined figure of 3.31 per cent.
While the more specialist nature of small-cap investing can lead to higher costs, this is significantly higher than the cheapest member of the peer group. Baillie Gifford China has an overall cost figure of just 0.87 per cent, stemming from a 0.80 per cent OCF and 0.07 per cent in transaction costs; it’s the only fund in the sector with an overall figure of less than 1 per cent.
Source: FE Analytics
The second highest average cost comes from the IA Targeted Absolute Return sector at 1.54 per cent. This comes from an average OCF of 0.99 per cent, transaction costs of 0.45 per cent and incidental costs of 0.22 per cent; the sector is one of the few where performance fees are commonplace.
Of all the close to 4,000 funds in the Investment Association universe, this peer group is home to the strategy which our data indicates has the highest overall costs.
FE’s cost data puts combined total of Polar Capital UK Absolute Equity’s ongoing, transaction and incidental costs at 9.44 per cent. Its OCF stands at 1.17 per cent, its transaction costs came to 5.06 per cent and incidental costs were 3.21 per cent.
Not all absolute return funds are very expensive, with Janus Henderson Absolute Return Fixed Income showing combined costs of just 0.21 per cent. Royal London Absolute Return Government Bond, Liontrust GF Absolute Return Bond and Royal London Duration Hedged Credit also have a figure below 0.5 per cent.
The IA Specialist sector is the third most expensive on average, reflecting the fact that its members focus on areas of the equity market that are not in the mainstream. It has an average overall cost of 1.50 per cent, which is the result of a 1.16 per cent OCF, 0.30 per cent in transaction costs and 0.13 per cent in incident costs.
The UK equity sectors are mid-table. The average overall cost of the IA UK All Companies peer group is 1.09 per cent, with Premier Ethical, VT Sorbus Vector, VT Cape Wrath Focus, MI Brompton UK Recovery Trust and Polar Capital UK Value Opportunities being among its most expensive members.
Meanwhile, the IA Global sector – which has been attracting plenty of inflows recently – has an average overall cost of 1.15 per cent. Among the funds with the highest costs are Aubrey Global Conviction, UBS (Lux) Equity SICAV Global Opportunity Unconstrained (USD), JPM Global Focus, Legg Mason ClearBridge Global Equity and HC Charteris Global Macro.
Focusing on some of the individual costs, the sector with the highest OCF is IA China/Greater China at 1.35 per cent, followed by IA Property Other (1.27 per cent), IA Flexible Investment (1.24 per cent) and IA Specialist (1.16 per cent).
The highest OCF on an individual fund is the 8.45 per cent levied by HC Charteris Property. Other high OCFs come from TC South River Gold and Precious Metals (3.85 per cent), LF Gresham House UK Smaller Companies (3.70 per cent), FP SCDavies Global Fixed Income (3.61 per cent) and Janus Henderson US Strategic Value (3.49 per cent).
In terms of transactional costs ex-ante, the IA Targeted Absolute Return sector has the highest on average as it stands at 0.45 per cent. Not far behind are IA China/Greater China (0.44 per cent), IA Japanese Smaller Companies (0.43 per cent) and IA Technology & Telecommunications (0.42 per cent).
Polar Capital UK Absolute Equity has the highest transactional costs at 5.06 per cent, followed by RWC US Absolute Alpha (4.39 per cent), Man GLG Alpha Select Alternative (2.65 per cent), Premier Ethical (2.52 per cent) and Premier Optimum Income (2.47 per cent).