Costs Under Pressure in Investment Trust Sector

Morningstar fund analyst David Holder reveals how the Retail Distribution Review has changed the cost dynamic of closed-end funds

David Holder 7 August, 2017 | 3:03PM

The Retail Distribution Review (RDR) has cast fresh light on charges within the investment fund world. For many years investment trusts were considered cheaper in terms of annual management fees than their open ended counterparts, largely due to the lack of retrocession payments. But as the tide has retreated, driven by the RDR, it has become increasingly clear who has been bathing exposed.

At Morningstar we are passionate about championing investor interests, and costs form an important element of our overall assessment of a strategy. Various studies have shown that it is one of the most important aspects of fund analysis, and unlike qualitative judgements such as the merits, or otherwise, of the fund manager’s abilities, the effectiveness and repeatability of the process and a judgment as to the custodianship of the fund house, it is fairly easily analysed.

Whilst this piece focuses primarily on the closed-end world, at Morningstar we are agnostic as to how investments are structured, whether via OEIC, SICAV, investment trust or ETF. Thus, when we are assessing the cost of an investment trust in terms of its ongoing charge*, including performance fees if appropriate, we compare it within its broader Morningstar Category and against the whole range of other investments available within it. Whilst the RDR, clean share classes and platforms have changed the nature of how retail investors access, pay for and hold their investments, the ongoing momentum behind passives is a game changer for all active managers, whether investment trusts or not.       

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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.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Jupiter European Opportunities Ord724.00 GBX9.04

About Author

David Holder  is a senior investment research analyst at Morningstar

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