JEFF PRESTRIDGE: Charges knock the wind out of the sails of trusts

Investment trusts offer a great opportunity for individuals to have a long-term involvement in stocks. These vehicles, which are often referred to as investment companies, have a history of over 150 years and have consistently provided patient shareholders with a combination of steady income and capital growth.

For individuals such as ourselves who invest, these options are perfect as they offer a convenient way to access a variety of stocks and markets within a single entity.

In regards to fees, they offer good value for the price, as numerous trusts have reduced their charges as they have grown larger.

In the past few years, they have also created opportunities for investors to earn a profitable income from the sector’s significant investments in environmentally friendly assets like wind farms, solar panels, and energy storage facilities.

Indeed, these trusts are doing exactly what fund manager Richard Buxton says this country’s pension funds and capital markets should be doing more of – which is providing the capital necessary to put the ‘Great’ back into Great Britain.

However, a combination of excessive regulations and nonsensical trade association policies is endangering the valuable efforts they make – both for investors and for the overall functioning of the economy. The economy is in desperate need of support.

Newish – and frankly crass – guidance on how investment funds (also known as unit trusts or Oeics) and investment trusts must now calculate their ongoing annual costs is diminishing their allure.

Due to this, investment platforms are eliminating certain funds from their websites due to high expenses. Similarly, prominent wealth managers and investment funds are selling off their investment trust holdings to reduce their ongoing charges and avoid accusations of not offering customers good value for their money.

Investment trusts, similar to stocks held by funds and wealth managers, are quoted companies. However, their underlying fees are now required to be included in the ongoing charge mentioned in key investor information such as factsheets and Key Information Documents (KIDs) published by the fund or trust that holds them in their portfolio.

The result is to artificially inflate the overall ongoing charge of the fund or trust that holds them, which is absurdly labeled as the synthetic cost in documents.

For example, Gravis UK Infrastructure Income is a £641 million investment fund which invests in companies financing key infrastructure projects. These include on and offshore wind farms and solar energy farms.

Embedded in its investment objectives is a commitment to offering investors ‘exposure to a vital sector for the UK’s economy’. It currently delivers a quarterly income equivalent to around 4.5 per cent, not as attractive as it once was when interest rates in the wider economy were lower. Although the fund’s managers cap ongoing annual charges at a reasonable 0.75 per cent, the new disclosure requirements require them to show investors a ‘synthetic’ ongoing annual charge.

This accounts for the 0.75 per cent charge PLUS an average of the annual charges of the 22 investment companies it holds in its portfolio – the likes of Greencoat UK Wind and Bluefield Solar Income. The fund’s other ten stakes (for example, National Grid) are not investment trusts, so are excluded from the calculations.

Gravis has updated its investor information to reflect an annual charge of 1.65 per cent. This figure is highly deceptive and discouraging for investors, investment platforms, and wealth managers.

The consequences are significant. Gravis may choose to sell its investment trust holdings in order to lower the annual charge of its fund and make it more appealing to investors. However, since most fund managers rely on listed investment trusts for exposure to infrastructure (due to their liquidity), it would be difficult for Gravis to find alternative investments. In the worst-case scenario, the fund may cease to exist if it cannot fulfill its investment objectives.

For investment trusts, the selling down of holdings in them in order for funds to reduce their own costs would be catastrophic. Reduced demand for investment trusts drives down their prices and widens the disconnect between asset values and share prices.

It would also compromise their ability to finance drivers of economic growth such as infrastructure spending and investment in renewable energy. A number of consumer-savvy members of the House of Lords have woken up to this issue. 

Baroness Ros Altmann criticizes the recent advice on fund fees, calling it a major mistake. She believes that the Financial Conduct Authority (FCA) should step in and put an end to this absurdity.

Baroness Bowles of Berkhamsted holds the same perspective. According to her, the recently provided instructions are ‘faulty and overstate expenses in a deceptive manner’.

She further states: ‘The Government and the FCA need to address a fundamental question. ‘Are investment trusts of this nature desired or not?’

‘Only a madman says no when they are exactly what the Chancellor and leading academics have been prescribing – namely vehicles for pension funds and private investors to invest in the UK economy and its vital infrastructure.’

Baroness Bowles urges the FCA or the Treasury to take immediate action to put an end to the ongoing absurdity.

She also expresses astonishment at the fact that the guidance, which originated from a flawed European Union law, has been able to spread throughout the post-Brexit regulatory landscape without any action being taken by the FCA except for inaction.

There are no unexpected outcomes. I believe it is now time for the FCA to demonstrate its competence and rectify an injustice.

The downfall of investment trusts would negatively impact both investors and the already unstable economy.

The car renewal cost of £2,215 is quite surprising.

Janet Clark, a 64-year-old administrator from Woodford Green in Essex, received the award for the highest insurance renewal premium of the year from Saga. This premium is the most outrageous one I have encountered so far.

Last month, she received her motor renewal premium for her Mercedes B200, a car she drives for no more than 5,000 miles a year. She has also not made a motor claim for at least 20 years.

Last year, the premium was £371.04. This year, it was £2,215.03 per annum, fixed for the next three years.

According to the renewal notice from Saga, Janet was informed that renewing her policy would result in three more years of insurance without any hassle.

Last week, Janet informed me that she suspected a mistake in the renewal price while attending a Spanish boot camp with her gym buddies. She mentioned that she double-checked the quote, but it turned out to be accurate.

Despite receiving a £40 loyalty discount from Saga, she decided to explore other options and ultimately received a quote of £756.96 from Aviva for a one-year coverage, without a fixed rate for three years.

Attempting a strategy that her spouse had previously employed with Saga, she inquired with the insurer if they would match the quote provided by Aviva. Unfortunately, they declined to cooperate, prompting her to choose Aviva instead.

Janet acknowledged that she had received an extraordinary offer from Saga for the past three years. However, she expressed her dissatisfaction with the current price of £2,215, considering it to be excessive.

Is your insurance company being unreasonable? Contact me via email at jeff.prestridge@mailonsunday.co.uk.

Extraordinary people 

The world is full of extraordinary people such as Rob Burrow (Rugby League legend) who defy the odds. He was diagnosed with MND four years ago, but with the support of a loving wife (Lindsey) and their three children (Macy, Maya and Jackson) fights on.

Last week, the documentary “Rob Burrow: Living With MND” came close to winning a National Television Award, but ultimately did not succeed.

Lee Evans, who has Duchenne Muscular Dystrophy, is defying the statistics by surpassing the expected life span of individuals with this debilitating condition. Despite the average life expectancy of 30 years, Lee, now 48, continues to persevere, even after his brother succumbed to the illness at the age of 26.

Lee has documented his struggle with this deadly disease in his latest publication titled I’m Still Standing. It is a captivating and motivational read, which can be purchased on Amazon for a reasonable price of less than ten pounds.