Smaller Companies Trusts Lower Fund Fees

Morningstar fund analyst David Holder reveals which smaller companies investment trust is the most competitively priced and who is working hard to lower costs

David Holder 3 August, 2017 | 9:58AM
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Fees remain in the fore front of our thinking on assessment of funds. It is a topical area and one that rightly looks set for ongoing scrutiny. Changes in fees can come about for many reasons such as enhanced competition, poor performance or for the assistance of investor transparency.

Two of our Morningstar Analyst Rated smaller companies close-end funds have amended their fee structure in the last six months. Montanaro UK Smaller Companies (MTU) has seen the annual management fee reduced from 0.85% to 0.5% effective April 2017 which we welcome.

The fund has seen some lacklustre performance recently and in 2016 levied an ongoing charge of 1.2% which compares unfavourably to the category median of 0.9%. 

Another example of a change in fees was recently seen at BlackRock Throgmorton Trust (THRG) where from this month the base fee is being reduced from 0.70% to 0.35% of gross assets. To offset this reduction the performance fee was increased from 10% to 15% of NAV total return outperformance of the benchmark measured over a two-year rolling basis.

The previous cap on the performance fee of 1% of average gross assets over a one-year period has been replaced with a cap of 0.9% of average gross assets over a two-year period. The new performance fee will be effective from December 2017 to coincide with the start of the new financial year of the Company. In this case we think it appropriate that the base fee is set at a relatively low level. This move has bucked the more general trend seen within the investment trust sector of removing performance fees.

Of our favoured trusts, Henderson Smaller Companies is the most competitively priced offering with a latest annual report ongoing charge – including performance fee – of 0.44% which puts it in the top decile of small cap funds. At the other end of the spectrum BlackRock Throgmorton Trust is the most expensive of our highlighted trusts with a latest ongoing charge including performance fee of 1.34%, although as we note above this is likely to become more competitive in the future.   

Focus: Smaller Companies Sector

The Morningstar Investment Trust UK Smaller Companies sector consists of 17 companies, but is dominated by five trusts; Aberforth Smaller Companies (ASL), Henderson Smaller Companies (HSL), BlackRock Smaller Companies (BRSC), BlackRock Throgmorton Trust and Standard Life UK Smaller Co (SLS) which together account for £3.3 billion assets and near 70% of the sectors overall assets.

Focusing on these Morningstar Analyst rated trusts they are with the notable exception of Aberforth all growth orientated in investment style, and as such, the portfolios trade at significant premium to the Numis Smaller Companies Index in terms of Price/Earnings, Price/Book and Price/Sales. Despite the nuanced differentiation in terms of investment approach, year to date, all have delivered strong positive returns and comfortably ahead of those of the benchmark.


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
Aberforth Smaller Companies Ord1,617.29 GBX-0.78Rating
abrdn UK Smaller Companies Growth Ord508.02 GBX0.20Rating
BlackRock Smaller Companies Ord1,525.60 GBX0.50Rating
BlackRock Throgmorton Trust Ord641.01 GBX-0.62Rating
Henderson Smaller Companies Ord915.61 GBX0.40Rating
Montanaro UK Smaller Companies Ord112.00 GBX1.36Rating

About Author

David Holder  is a senior investment research analyst at Morningstar

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