By this term, he means not simply an emphasis on outstanding fund performance (any manager with a sense of pride in his or her work will strive to achieve this), but on that performance relative to the charges levied on the fund itself.
For Jonathan, the best "value" funds in recent years have tended to be trackers, which replicate in some form the performance of one of a range of share indices, be they in the UK or worldwide.
In recent years, the record of UK-linked trackers when compared with their more actively managed rivals speaks for itself. In the past three years, Gartmore's UK Index fund, an All-Share tracker, delivered growth of 67.2 per cent. This performance places it in 23rd place within the UK growth and income sector, which consists of 130 funds. Virgin Direct's tracker achieved near identical performance: pounds 6,000 invested in April 1996 would now be worth pounds 10,035.
Performance, however, is not the only criteria by which we can assess whether a fund delivers value. Closely linked to it is the cost of investing in the fund itself. Quite clearly, a unit trust with a bid/offer spread (the difference between buying and selling a fund) of 5 or even 6 per cent, plus annual management charges of 1.5 per cent, will have to deliver considerably better performance year after year than a fund that has no initial charges and levies only a 0.5 per cent management fee each year.
The evidence is that few active-fund managers succeed in delivering the kind of outperformance to justify the higher charges they levy. Indeed, some funds, facing a sharp rise in the value of Footsie company shares, have been forced to turn their funds virtually into "closet trackers".
According to a recent survey by Money Marketing, a specialist magazine aimed at financial advisers, some managers are buying shares in leading Footsie companies almost in the same proportion as trackers themselves.
For instance, the top 10 Footsie stocks at the beginning of March were BP Amoco, Glaxo Wellcome, British Telecom, Lloyds TSB, HSBC Holdings, SmithKline Beecham, Vodafone, Shell, Barclays and Diageo.
Taking three funds as an example - Fidelity's UK Growth, Hill Samuel British Unit Trust, and Henderson UK Capital Growth funds - all held shares in between seven and 10 of these top 10 Footsie companies, in roughly the same proportions as their weighting in the index.
The position on charges has become even more complicated by the Treasury's attempts to ensure that investors in the new Individual Savings Account (ISA), the tax-free wrapper that replaced PEPs last week, should operate some form of benchmark system.
CATmarks (the initials stand for low Charges, easy Access and fair Terms) are its preferred solution. Essentially, any company that aims to claim a CATmark for its investment fund must charge no more than 1 per cent in annual management fees, while the minimum investment should be no more than pounds 50 a month or pounds 500 for lump sums.
Fund management companies have led a powerful rearguard action against CATmarks. They argue that more naive savers will be led to believe that the use of a CAT standard means the fund itself carries some sort of government seal of approval.
Second, and linked to the above, it is argued that by demanding such a low initial charge (instead of a more typical 5 per cent fee), a CATmark bars independent financial advisers (IFAs) from offering proper advice to savers.
This is a powerful argument, which the Government has tried to counter by suggesting that IFAs should be prepared to operate on a fee-paid basis when giving advice on equity-linked ISAs. But clearly, many clients, used to the notion that their IFA is somehow magically able to recommend products without them ever having to pay hard cash for his advice, are likely to balk at paying pounds 200 or more for the privilege.
Even so, the fund management industry's strictures on the need for proper advice would have had more validity were it not for the sight of investors queuing over the Easter bank holiday, all aiming to beat the 5 April deadline for last-minute PEPs. As many interviews revealed at the time, many had no idea what they were doing or of the tax-effectiveness of PEPs relative to their financial needs.
Bureaucratic they may be, and set at slightly too low a level for fund managers' comfort. Even so, CATmarks still offer the potential for investors to tell whether the contracts they are entering into offer fair charges on their money.
Barely a handful of ISA providers have chosen to offer CATmarked funds. Those that have agreed met this week to devise a common logo.
It is too soon to say whether this will raise the profile of CATmarked funds and prompt other providers to offer similar ones. Perhaps the only way this will happen will be if it becomes clear that investors are seeking out funds with low entry costs and decent performance.
Even if CATmarks are not the magic answer to investors' prayers, at least they raise questions about what we pay fund managers to look after our money - and what we get back in return. In the case of many pooled fund investments, the answer is: not much.Reuse content