3 Low Fee Investment Trusts

Which closed-end funds have the lowest charges? We examine the cheapest trusts and see if you can maximise performance while keeping costs down

Emma Wall 11 February, 2014 | 3:21PM
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You get what you pay for - so the adage goes. While investors may not want to pay peanuts for monkeys, cost is an important factor when it comes to choosing funds.

Actively managed funds are not as cheap as passive tracker funds, charges can vary considerably between investment trusts and a 10 basis point difference can gnaw away at potential profits over time. The compound effect of unnecessary charges over the course of a long-term investment can be considerable.

But fees should not be the only factor considered when choosing how to invest. Morningstar Analyst Ratings highlight the funds most like to outperform their peers and their benchmark in the future. Below we highlight three investment trusts which are Gold Rated and which charge less than their peers. 

City of London (CTY)

Gold Rated

Ongoing Charge including Performance Fee: 0.44%

There are several reasons we have such conviction in the fund, said Morningstar analyst Jackie Beard.  Job Curtis has been at the helm for more than 20 years—a length of tenure that’s rare to see.

Not only has the management been consistent, but the process used by Curtis is little changed over that time, too. Curtis is naturally a cautious investor and this caution has served shareholders well over the years. He doesn’t ignore the macro picture, but the bulk of his analysis is done from the bottom up. A company’s cash generation and physical assets are important in his analysis, but the primary driver for a stock to enter the portfolio is dividend yield and this focus on income as a measure of a company’s value has been paramount in the fund’s success.

Scottish Mortgage (SMT)

Gold Rated

Ongoing Charge including Performance Fee: 0.51%

Anderson’s sabbatical at Scottish Mortgage hasn’t reduced our confidence, said analyst Szymon Idzikowski.

The fund’s long-standing lead manager James Anderson will be temporarily absent from July 2013 to mid-January 2014 on sabbatical, but we believe deputy manager Tom Slater is a confident pair of hands to take the lead during Anderson’s short absence. Slater has been co-manager and on his team since 2009 and at the firm for more than a decade, so he’s well versed in the team’s style. 

Temple Bar (TMPL)

Gold Rated

Ongoing Charge including Performance Fee: 0.51%

Temple Bar has many appealing features, in our view, said Idzikowski.

Firstly, it has an experienced manager in Alastair Mundy. He’s backed by a stable and well-resourced team that he has hand-picked over his 13 years at Investec—in that time, just one team member has left and that was for personal reasons rather than to join a competitor; we think this is testament to their collegial approach. The team members aren’t organised by sector, as Mundy prefers them to be generalists. Given their investment approach focuses on unloved companies, he believes this helps them avoid becoming overly negative on, or biased against, particular stocks.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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