6th November 2026
We have always been strong advocates of active fund managers and have always been willing to accept that this brings a higher OCF on account of the ‘cost’ of those underlying active funds contribution to the synthetic costs figure. There has been lots written about the fact that the average active manager underperforms passive equivalents, but our passion for active management is more than just that search for alpha. Our fund and manager selection process involves a number of factors but whether we expect a fund to outperform its chosen benchmark isn’t typically top of the list.
We don’t manage the Funds with reference to a benchmark which means we don’t have to have exposure to certain asset classes or regions (other than to meet IA sector guidelines). Instead, we manage the Funds to meet their respective objectives and therefore adopt what is commonly referred to as a Total Portfolio Approach. For example, owning a US value equity fund like Smead US Value, an Asian income fund like CIM Dividend Income, or a thematic fund like Polar Capital Global Insurance is more about what each fund brings to the overall portfolio in terms of the valuation opportunity, idiosyncratic sources of returns, diversification benefits, currency exposures, style characteristics, market cap etc. These funds may well have higher-than-average OCFs that contribute to our own higher-than-average synthetic OCFs but they are very important holdings that we couldn’t do without.
The Polar Capital Global Insurance Fund is a good case in point and one we have written about before (link). Whether it outperforms a global equity tracker misses the point. The prime reason we own the fund is its positively asymmetric risk-return profile where we expect attractive absolute returns to be delivered within a narrower range of probable outcomes than those of the broad equity market.
While each underlying active fund will have an arbitrary market cap weighted benchmark, we often don’t mind if it is underperforming, especially if its benchmark is full of risks we don’t want to be exposed to. This is very pertinent in the current climate where US and Asian equity markets (and by extension global equity markets) are highly concentrated in a few names linked to the AI theme. If CIM Dividend Income was outperforming the Asian market this year it would raise concerns to us as it would suggest significant mandate drift and likely cause a reassessment of its role in the portfolio. The same would be true for a corporate bond manager that is outperforming its benchmark because of a large exposure to high yield or because it is carrying an outsized spread duration for example. While it might be a good fund and the manager might be calling the market well, it wouldn’t fit with our valuation concerns in the lower quality area of the corporate bond market and worries that spreads are excessively tight.
A useful analogy is the Moneyball approach associated with Billy Beane and the Oakland Athletics. Beane looked beyond conventional assessments of players to identify attributes the market undervalued. The point was not that these were poor players, but that their contribution could be obscured by an excessive focus on other characteristics. A player did not need to excel at everything to have a valuable role in a successful team. In the same way, we are constructing a portfolio of funds each tasked to do a particular job and how that combination supports the portfolio’s objectives, not purely because a fund looks good on a quant screen.
We are acutely aware of fee pressures throughout the wealth management industry and we do all we can to mitigate the impact of our active approach on the Funds’ overall OCF. This can be achieved in a number of ways including investing in the cheapest available share class or negotiating fee rebates. Investment companies are an important consideration given they carry a zero synthetic cost since the change in disclosure rules last year. Importantly, we only use investment companies where they offer exposure to asset classes unavailable via open-ended funds, where the manager is fully utilising the closed-end structure or where a discount opportunity exists.
We believe this granular and collective approach to fund selection is only possible via active funds that are doing something different to what you can get from cheaper passive equivalents. Consequently, the good historic performance of the Hawksmoor Funds is only possible with an entry in the synthetic cost column. Using Vanbrugh as an example, in its most recent OCF calculation, the ‘cost’ of the underlying funds was just 0.24% which we believe is good value given the exposure this provides to all parts of global financial markets managed by experts in their chosen field. Crucially, the strong absolute performance track record of the Funds is always quoted net of all costs and fees.
Daniel Lockyer – Senior Fund Manager
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For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC26794.
