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Service: Investment Fund (Unit Trust) Product: QEP US Core

Review by hdeakin299 submitted on 24 September 2013

Likes: Low TER : Research based strategy for out performance.

Dislikes: There is a limited number of QEP funds on the Fidelity platform (only 2 funds available at present) and the others do not appear to be as cheap as this one

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This review is about the Schroder QEP US Core This fund invests in the USA and Canada and QEP stands for Quantitative Equity Products.

I recently asked Justin a question and he gave the following information:" The Schroder QEP fund range uses a lot of number crunching (called quantitative analysis) to select stocks from a wide universe...I think there is a future for funds..." (using these techniques ) ..... "but as with all actively managed funds there will be those that succeed and those that don't, based on the quality of their algorithms and the market place"

They are not smart trackers /tuned trackers as they are based on an algorithm and not on an index .So it appears that what I am reviewing here is an " Active Algorithmic fund" (I like coming up with names for things as it helps me categorise)

In a PDF document called "Fee Transparency : Annual Fund Supermarket and Service Fees" , Fidelity gives this fund an AMC of 0.3% which is good value : the Standard Fund Supermarket and Service Fee is listed as 0.1%.The current fact sheet also confirms that the AMC is 0.30% : the TER is 0.32% and the service fee is included in the TER.

For me , the new TER watershed separating cheap from dear funds is now 0.5% TER and in my portfolio, anything below that will be retained regardless of whether active or passive : anything above that , with a few exceptions will be switched out of : this is the new plan.This fund's TER is easily on the best side of this divide and so my holding can be increased.

The manager of this US Large-Cap Blended Equity Fund is Justin Abercrombie and the fund invests in the USA and Canada with a possible element of special situations . On the Schroders website John Marsland writes ..." we would argue that adhering to index constraints may limit the potential return opportunity for investors and can lead to the inefficient allocation of funds to satisfy index constraints ". He states that these funds are anything but passive and that the number of stocks in the fund belies their active nature using a diversified unconstrained , bottom up and pragmatic approach .

The QEP product range includes the following elements :- Global Value , Global Quality , Global Blend , Global Value Extension and Core Equity. The CORE part is described as : Global , US and Japanese enhanced indexation strategies targetting gross outperformance of 1% per annum for Global &Japan and 0.75% for US that has the benefits of index-based investing in terms of risk and cost but provides the opportunity to achieve consistent outperformance .

What is the difference between this type of fund and a "closet tracker" . I can see at least 3 differences. Firstly, this is a lot cheaper than the closet trackers we know about "from the past" which could charge quite a bit with very high TERs .Secondly we now know this fund is based on an algorithm (I may be wrong but I would think that most closet trackers from the "old days"were too unsophisticated to use good algorithms) Another difference appears to be their ambition to outperform and their researched strategy to achieve this..

But this fund has made me rethink what I am actually doing : until I acquired this fund and looked at it in detail I has assumed it was a cheap passive. But it is not. So by including it and building up my holding in it , I have not been not "passifying" my portfolio : a new term is needed . Really what I am doing is "deTERring" high TERs by getting rid of high TERs whether they are in active or passive funds.

This particular fund has low cost in common with a lot of passive funds. But not all the QEP funds are equally cheap . So the question here is "Why?" . I suppose the answer could be that the algorithms for US markets cost less to develop.

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