Investment trusts are a super way of getting long-term exposure to equities. Many of these stock market-listed vehicles – sometimes also known as investment companies – have been around for more than 150 years, quietly delivering a mix of regular income and capital gain for patient shareholders.
For investors like me and you, they are ideal, providing access to a basket of shares and markets under one umbrella.
In terms of charges, they also provide value for money with many trusts cutting their fees as they have got bigger.
In recent years, they have also paved the way for investors to obtain an attractive income from the sector’s heavy investment in green assets such as wind farms, solar panels and energy storage facilities.
Indeed, these trusts are doing exactly what fund manager Richard Buxton (see Wealth cover) says this country’s pension funds and capital markets should be doing more of – which is providing the capital necessary to put the ‘Great’ back into Great Britain.
Concern: The trust sector is a big investor in green assets including wind farms. Inset: Baroness Ros Altmann
Yet a mix of regulatory creep and trade association nonsense (from The Investment Association) is threatening to undermine the great work they do – for investors and for us all in terms of oiling the economy’s wheels. And boy, do those wheels need lubrication.
Newish – and frankly crass – guidance on how investment funds (also known as unit trusts or Oeics) and investment trusts must now calculate their ongoing annual costs is diminishing their allure.
As a consequence, investment platforms are removing some funds from their sites on expense grounds while big wealth managers and investment funds are divesting their investment trust holdings in order to lower their own quoted ongoing charges – and head off criticism that they are not providing consumers with value for money.
Although investment trusts are quoted companies – like most stocks held by funds and wealth managers – their underlying fees must now be reflected in the ongoing charge disclosed in key investor information (factsheets and KIDs – Key Information Documents) published by a fund or trust that holds them as part of their portfolio.
The effect is to make the overall ongoing charge of the fund or trust holding them – ludicrously referred to as the synthetic cost in documents – artificially expensive.
For example, Gravis UK Infrastructure Income is a £641 million investment fund which invests in companies financing key infrastructure projects. These include on and offshore wind farms and solar energy farms.
Embedded in its investment objectives is a commitment to offering investors ‘exposure to a vital sector for the UK’s economy’. It currently delivers a quarterly income equivalent to around 4.5 per cent, not as attractive as it once was when interest rates in the wider economy were lower. Although the fund’s managers cap ongoing annual charges at a reasonable 0.75 per cent, the new disclosure requirements require them to show investors a ‘synthetic’ ongoing annual charge.
This accounts for the 0.75 per cent charge PLUS an average of the annual charges of the 22 investment companies it holds in its portfolio – the likes of Greencoat UK Wind and Bluefield Solar Income. The fund’s other ten stakes (for example, National Grid) are not investment trusts, so are excluded from the calculations.
The result is that Gravis now shows in its investor information an ongoing annual charge of 1.65 per cent. A figure that is hugely misleading, but more damagingly off-putting to all – investors, investment platforms and wealth managers.
The knock-on effects are huge. Gravis could divest itself of its investment trust holdings to reduce its fund’s synthetic annual charge – and make the fund more investor-friendly. But given most of the exposure that fund managers can get to infrastructure is through listed investment trusts (for liquidity reasons), the Gravis vehicle would struggle to find replacement investments. Worst case scenario, it could give up the ghost, accepting it can no longer fulfil its investment remit.
For investment trusts, the selling down of holdings in them in order for funds to reduce their own costs would be catastrophic. Reduced demand for investment trusts drives down their prices and widens the disconnect between asset values and share prices.
It would also compromise their ability to finance drivers of economic growth such as infrastructure spending and investment in renewable energy. A number of consumer-savvy members of the House of Lords have woken up to this issue. Baroness Ros Altmann describes the new guidance on fund charges as a ‘spectacular own goal’. She says the Financial Conduct Authority (FCA) should intervene and end the nonsense.
It is a view shared by Baroness Bowles of Berkhamsted. She says the new guidance is ‘flawed and exaggerates costs in a misleading way’.
She adds: ‘The question to be answered by the Government and the FCA is existential. ‘Do you want these kind of investment vehicles [investment trusts] or not?’
‘Only a madman says no when they are exactly what the Chancellor and leading academics have been prescribing – namely vehicles for pension funds and private investors to invest in the UK economy and its vital infrastructure.’
Baroness Bowles says the FCA – or the Treasury – should intervene as a ‘matter of urgency’ to end the current nonsense.
She also says it is ‘unbelievable’ that the guidance, stemming from a ‘bad piece of European Union legislation’ has been allowed to replicate itself all over the post-Brexit regulatory environment with the FCA doing no more than ‘sit on its hands’.
No surprises there. Time, I think, for the FCA to earn its corn and right a wrong.
The demise of investment trusts would be a blow to both investors and the health of an already wobbly economy.
£2,215 car renewal takes the biscuit
Saga wins the award for the most outrageous insurance renewal premium I have seen so far this year. It was received by Janet Clark, a 64-year-old administrator from Woodford Green in Essex.
Last month, she received her motor renewal premium for her Mercedes B200, a car she drives for no more than 5,000 miles a year. She has also not made a motor claim for at least 20 years.
Last year, the premium was £371.04. This year, it was £2,215.03 per annum, fixed for the next three years.
Covered: Saga wins the award for the most outrageous insurance renewal premium so far this year
Renewing your policy, Saga said in Janet’s renewal notice, ‘means another three years of hassle-free insurance.’
‘I thought there was a typo in the renewal price,’ Janet told me last week while spending a few days in a Spanish boot camp with colleagues from her local gym. ‘I questioned the quote twice, but it was correct.’
Although Saga offered her a £40 loyalty reduction, she looked elsewhere and was offered cover from Aviva for £756.96 (one year only, not fixed for three years).
Trying a tactic her husband had successfully used earlier in the year with Saga, she asked the insurer whether it would match Aviva’s quote. It wouldn’t play ball, so she went with Aviva.
‘I accept I have had an exceptional deal for the past three years from Saga,’ Janet said. ‘But £2,215 is taking the biscuit.’
Has your insurer taken the biscuit? Email me at [email protected].
Extraordinary people
The world is full of extraordinary people such as Rob Burrow (Rugby League legend) who defy the odds. He was diagnosed with MND four years ago, but with the support of a loving wife (Lindsey) and their three children (Macy, Maya and Jackson) fights on.
The documentary about his life (Rob Burrow: Living With MND) narrowly missed out on a National Television Award last week.
Another extraordinary person defying the odds is Lee Evans who has Duchenne Muscular Dystrophy. Although people with this awful condition have a 30-year life expectancy, Lee is still going strong at 48 (his brother passed away from it, aged 26).
Lee has written about the battle with this killer illness in his new book I’m Still Standing. It is both a hoot to read – and inspiring. It’s available from Amazon for less than a tenner.
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This post first appeared on Dailymail.co.uk
