Which are the Cheapest Investment Trusts?

Looking for active management on the cheap? Why not consider closed-end funds - 79 investment trusts have reduced their charges since 2013

Emma Wall 16 June, 2015 | 3:18PM
Facebook Twitter LinkedIn

All this week we are running a Guide to Active and Passive Investing to help you, the investor, make smart choices for your portfolio.

Fund investors have felt the benefits of falling fees in recent years. Since regulation introduced in January 2013 open-end funds have issued clean share classes which cost investors less to access the same portfolios.

But investment trusts have long been committed to low costs. For years closed-end funds offered investors fantastic outperformance on a budget. Some fund managers even ran similar open and closed-end funds – but for significantly different costs. When Neil Woodford ran both Invesco Perpetual Income and the Edinburgh Trust, fee structures boosted returns over five years by 10%.

And now that the cost of open-end fund investing has begun to fall, investment trust providers are not resting on their laurels.

Since the beginning of 2013, 79 investment trusts have lowered their charges – either by scrapping performance-related fees, reducing base fees or capping costs.

This year alone five investment trusts have announced they will be scrapping performance fees. These are not small outfits either – the trusts are managed by major asset managers JP Morgan, Fidelity and BlackRock.

It is not just price innovation which has set investment trusts apart in recent years. Thanks to the work of Morningstar and the AIC among others, many income focused closed-end funds are now moving to quarterly dividend payments to provide a more regular stream of income to their shareholders. There is also greater transparency around investment trusts’ portfolio holdings, helping investors to make more informed decisions.

The Cheapest Trusts…

Closed-end funds invested in domestic equities are the cheapest. The Association of Investment Companies UK Equity Income sector has the lowest average ongoing charge of 0.74%, including the Morningstar analyst Gold Rated City of London (CTY) at just 0.44%. Also in the sector, Temple Bar (TMPL) charges 0.48% a year and it similarly Gold Rated.

The UK All Companies sector has an average ongoing charge of 0.77%. Schroder UK Growth (SDU) is the cheapest trust in the sector with an ongoing charge at 0.47% although its Morningstar analyst rating is currently Under Review following the resignation of manager Julie Dean in September.

Mercantile Investment Trust (MRC) holds a Neutral Rating charges 0.5%. The Global sector has an average ongoing charge of 0.81%, and the Global Equity Income has an average fee of 0.85%.

…And the More Expensive Funds

While a great deal of investment trusts have low charges, there are some invested in illiquid, alternative assets with higher fees.

“At the other end of the scale to UK equity trusts, it is generally the more specialist sectors that have higher charges,” said the AIC’s Annabel Brodie-Smith.

She highlighted the Property Direct: Asia Pacific sector which has an average charge of 7.16%, but this is unusual – the next highest is the Property Direct Europe sector with an average ongoing charge of 2.85%.

The Sector Specialist: Forestry & Timber with an average ongoing charge of 2.77%.

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.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Baillie Gifford UK Growth Trust Ord162.50 GBX0.00Rating
City of London Ord407.00 GBX0.62Rating
Edinburgh Investment Ord701.00 GBX1.01Rating
Mercantile Ord222.50 GBX0.00Rating
Temple Bar Ord247.50 GBX0.81Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures