3 Top Rated Investment Trusts with Low Fund Fees

As Baillie Gifford announces plans to cut fees on two of its top investment trusts, we look a the cheapest top-rated closed-end funds available to investors

David Holder 2 September, 2016 | 10:20AM
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History has shown that a fund’s fees are a key predictor of future returns. The lower the fees, the greater the gains returned to the investor – compounded over time this is very compelling for returns. The cost of investing plays an important role within the Morningstar Analyst Rating process, along with the investment process, quality of manager and the culture within a fund house. 

Baillie Gifford Cuts Fees

We were therefore pleased to hear that Baillie Gifford have announced that they are reducing the fees on the Gold Rated Baillie Gifford Japan Trust (BGFD) and the Bronze Rated Edinburgh Worldwide Investment Trust (EWI) on September 1 2016. Both trusts have in place an existing tiered fee structure based on net assets starting at 0.95% on the first £50 million and 0.65% thereafter. The additional kicker is that now Baillie Gifford will charge a reduced fee of 0.55% on net assets over and above £250 million.

We like the concept and message for investors here, that is, as assets grow they will benefit from the resultant economies of scale and enhanced net performance. Given that the Baillie Gifford Japan Trust has net assets of around £420 million and Edinburgh Worldwide Investment Trust of approximately £270 million investors will see the benefit of these changes with immediate effect. The respective boards are to be applauded for securing lower fees for investors and boosting investor returns.

3 Investment Trusts with Low Fees

Baillie Gifford’s move makes them a competitive offering within the closed-end fund space, but they are not the only firm to reduce fees in recent years. Two of the lowest cost investment trusts on the market are managed by Henderson and both previously had a management fee and performance fee, the latter of which were scrapped in 2012.

We are not adverse to performance fees, providing that they are appropriately structured, however the frequency with which they are now being scrapped suggests that boards and investors favour the simplicity and transparency of a single fee structure.

The Gold Rated City of London Investment Trust’s (CTY) fees are highly competitive, with ongoing charges as at the end of June 2015 at just 0.42%. City of London is amongst the cheapest of all the UK listed investment trusts and considerably cheaper than the broader peer group average of 0.89%.

The fund predominantly provides investors with core UK equity exposure, although there are some overseas holdings at the margin. It offers the prospect of longer term growth in capital and income and the dividend here has been raised for an impressive 50 consecutive years. Job Curtis’s cautious approach and focus on limiting downside risk makes it especially suitable for those investors with less tolerance for risk although they should still broadly expect equity volatility here.

Scottish Mortgage Investment Trust (SMT), also rated Gold, is managed by James Anderson and Tom Slater at Baillie Gifford. The fund provides exposure to global equities however investors should be cognisant that the highly active nature of the management here together with the inclusion of unlisted investments, structural gearing and a relatively concentrated portfolio is likely to lead to a bumpy ride at times. Investors should consider this a long term investment and part of a wider diversified portfolio.

With net assets of some £4 billion the fund is very substantial in size and this is reflected in the fees that investors pay here which are highly competitive with an ongoing charge of 0.45% as at the end of March 2016 compared to the broader category average of around 0.98%. This adds very substantially to the overall proposition for investors.

Another trust of note is the Bankers Investment Trust (BNKR), which is Silver Rated. The Trust provides a one stop shop for global equity exposure. Its legacy was strongly UK centric but that has gradually been paired back through Alex Crooke’s long tenure and now more than 60% of the fund is invested overseas. There is a strong income commitment which has been fulfilled for over 49 years.

The fund represents an ideal core building block within portfolios. The fees investors pay here are very competitive and transparent. It is the board’s aim that Bankers offers investors one of the lowest fees in the sector and with an ongoing charge as at the end of October 2015 of 0.52% they have achieved this, especially when compared with the broader category average of 0.98%.

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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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Baillie Gifford Japan Ord718.00 GBX0.00Rating
Bankers Ord111.68 GBX-1.00Rating
City of London Ord416.42 GBX0.22Rating
Edinburgh Worldwide Ord141.80 GBX-0.42Rating
Scottish Mortgage Ord891.44 GBX-0.62Rating

About Author

David Holder  is a senior investment research analyst at Morningstar

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