JP Morgan cuts fund fees to tempt passive investors

Mon Jan 31, 2011 10:52am EST

* Touts "first" low-cost, actively managed equity fund

* To charge 10 pct on extra FTSE All Shares returns

* Cuts management fees, scraps preliminary charge

LONDON, Jan 31 (Reuters) - J.P. Morgan Asset Management is rebranding and cutting the fees on one of its UK equity funds to woo recession-hit investors seeking greater choice and value for money in their lower risk investment strategies.

The funds arm of U.S. financial group JP Morgan Chase & Co (JPM.N) said on Monday it was launching "possibly the UK's first low cost, active managed, open ended investment solution to challenge the passive market" -- where cost-conscious investors have fled to escape rising fund fees.

Passively-managed products -- also known as trackers -- are designed to generate returns that mirror indexes. Such funds are cheap to run but offer limited potential for outperformance.

"We know that today's investors are increasingly concerned about fund charges and a preferred route to seeking lower cost funds has been through lower risk investments," said Jasper Berens, head of UK Retail Sales.

"We believe that many investors buy these funds because they are low cost rather than because of a specific preference for passive management," he said.

The move comes as fund managers face tricky negotiations with some clients who suffered substantial losses in the aftermath of the credit crisis, despite having paid higher fees for actively managed funds supposed to better withstand difficult or volatile markets.

To meet increasing demand for lower-cost, actively managed funds, JPMAM's 95 million pounds ($150.9 million) JPM UK Active 350 Fund will be renamed the JPM UK Active Index Plus Fund, and will change its benchmark to the FTSE All Share Index from the FTSE 350 "in line with other comparable products," JPMAM said.

The fund will carry an annual management charge of 0.25 percent and fixed expenses of 0.15 percent for all investors, against a 1 percent and 0.6 percent fee for retail clients and institutions respectively in the old fund.

The old fund also levied an initial charge of 3.5 percent on retail customers, which JP Morgan has now scrapped.

In exchange for the reduction in the fees levied to cover the costs of managing the fund, JPMAM has introduced a 10 percent performance fee on any return above the FTSE All-Share index but Berens told Reuters the fund will not charge more than 55 basis points, including performance and management fees.

"The performance fee means investors only pay for the benefits of active management when they are reaping its rewards," Berens said.

The fund, in its new guise, will continue to be actively managed by the same investment management team, led by Michael Barakos, using the same investment process but with a lower risk management framework. (Reporting by Cecilia Valente; Editing by Sinead Cruise and Jon Loades-Carter) ($1=.6297 Pound)