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Investment trust fee cuts on the rise

Thirty-seven investment trusts have cut their fees this year, up from 27 in 2017
December 27, 2018

Baillie Gifford and Schroders have cut charges on some of their investment trusts, taking the number of trusts that have reduced fees in 2018 to 37, according to the Association of Investment Companies (AIC).

Baillie Gifford has cut its fee from 0.95 per cent to 0.75 per cent on the first £50m of assets under management of Edinburgh Worldwide Investment Trust (EWI), Pacific Horizon Investment Trust (PHI), Baillie Gifford Japan Trust (BGFD) and Baillie Gifford Shin Nippon (BGS). These trusts have a tiered fee, so on the next £200m of their net assets the fee is 0.65 per cent and on assets over £250m it is 0.55 per cent. The reduced charging structure comes into effect from 1 January 2019.

Schroder UK Mid Cap Fund (SCP) has scrapped its flat fee of 0.7 per cent in favour of a tiered model. It now charges 0.65 per cent on the first £250m of assets and 0.6 per cent on those above that. The trust has assets of around £196m. 

This year 37 investment trusts have cut fees by reducing their headline charges, moving to a tiered model or scrapping performance fees. This is an increase on the 27 investment trusts that amended their fees in 2017, according to the AIC, as trusts feel the need to compete with open-ended funds, which on average have lower ongoing charges. “It’s positive that [these trusts] have reduced their fees in 2018," said Ian Sayer, chief executive of the AIC. "Independent boards of directors are a benefit of the sector and continue to represent investors’ interests by negotiating lower fees.”

 

Investment trusts which have abolished performance fees in 2018
TrustAIC sector
Target HealthcareProperty Specialist
Invesco Perpetual Enhanced IncomeGlobal High Income
Premier Global InfrastructureSector Specialist: Utilities
BlackRock Smaller CompaniesUK Smaller Companies
Value and IncomeUK Equity Income
Artemis AlphaUK All Companies
Jupiter GreenSector Specialist: Environmental
MedicXProperty Specialist
Henderson European FocusEurope
Source: AIC

 

Investment trusts which have introduced tiered fees in 2018

Trust

AIC sector
Henderson High IncomeUK Equity & Bond Income
North American IncomeNorth America
Securities Trust of ScotlandGlobal Equity Income
Aberdeen New IndiaCountry Specialists: Asia Pacific
Fidelity European ValuesEurope
City Natural Resources High YieldSector Specialist: Commodities & Natural Resources
Henderson Alternative StrategiesFlexible Investment
Artemis AlphaUK All Companies
Jupiter GreenSector Specialist: Environmental
VinaCapital Vietnam OpportunityCountry Specialists: Asia Pacific
Fidelity JapanJapan
Schroder Income GrowthUK Equity Income
Henderson European FocusEurope
Invesco AsiaAsia Pacific - Excluding Japan
Schroder UK Mid CapUK All Companies
Source: AIC

 

Research firm Kepler Trust Intelligence has found that the average ongoing charge on investment trusts fell by 0.04 percentage points in 2018, and fell by similar levels in 2017 and 2016. Most of the fee cuts were made by private equity investment trusts, where the average fee fell by 0.34 percentage points in 2018. UK equity and bond investment trusts' average fees fell by 0.08 percentage points.

William Heathcoat Amory, who leads the Kepler investment trust research team, said the pressure on investment trust boards to reduce fees has become greater as both investors and the regulator question the level of charges levied by funds.

This was particularly apparent earlier this year when the board of Invesco Perpetual Enhanced Income (IPE) became embroiled in a dispute with the trust's managers over fees. Invesco Perpetual resigned as manager of the trust, but was reinstated after it came to a resolution with the trust's board that involved a reduction of its fees and changes to the board.

However, Mr Heathcoat Amory said that while fee reductions are beneficial, investment trust boards should not lose sight of what’s important.

“Boards, managers and investors alike must remember that it’s better to have a fund [with higher charges] that is achieving or outperforming its objectives, than a cheap fund that is underperforming," he said. "It’s entirely healthy that boards should try to reduce costs as much as possible, but not if it results in an outcome that shareholders don’t want."

There have also been substantial cuts to charges for exchange traded funds (ETFs) over the past few years. Recent examples include Invesco Physical Gold ETC's (SGLP) cut of 0.05 percentage points, which took its fee down to 0.24 per cent – similar to the 0.25 per cent charge of its larger and more popular rival, iShares Physical Gold ETC (SGLN).