Ongoing charges - big differences AIC vs Platform/KIDs

[kanga]

This is under the Charges summary on the HL report as a definition -
- Charges made by fund/ ETF/ investment trust managers for managing your investments. These charges are already included in the fund's price, so they
aren't shown in your transactions.

I have also been through my other ITs to compare. One other is Aberforth Smaller Companies (ASL) where both AIC and HL quote 0.75%, The KID shows a potential reduction of 1.09% but my actual charges are 1.28%........Another one that does not come close is HOT.

I do remember reading an article a couple of months ago about trusts that cost far more than published charges due (from my memory of the article) to transaction costs but I didn't have any of the specific investments quoted.

[EthicsGradient]

OK, so these figures aren't "what I have been charged by HL"; they are what HL reckons is the ongoing cost of running the trust (which is done by Premier Miton - HL is saying what the figures are, not taking the money). Since Premier Miton's own KIID says 0.77% for portfolio transaction costs, and 4.45% for other ongoing costs (which includes 2.09% for gearing, ie borrowing), it is hard to know how HL has come up with a higher-still figure. Do HL not break it down in any way? (My HL account has long been dormant, so yes, I don't get these kinds of reports. The AJ Bell report I get lists 'ongoing charges' by each IT's fund manager, which, for ones I hold (no overlap with yours) vary from 0.86% to 1.29%. II is down for maintenance at the moment, and I don't save their charges documents, so I can't remember how they present them)

https://corporate-premiermiton.huguenot ... 2-2022.pdf

Note this KIID is using 'costs' - see the earlier posts.

[mc2fool]

I have also been through my other ITs to compare. One other is Aberforth Smaller Companies (ASL) where both AIC and HL quote 0.75%, The KID shows a potential reduction of 1.09% but my actual charges are 1.28%........Another one that does not come close is HOT.

Well, for one, I think we've already clearly established that what the AIC (properly by the regulations, if not commonsensically!) publishes as the Ongoing Charges is basically just the annual management fee, and that what HL publishes as Ongoing Charge is actually Ongoing Costs.

Now, putting the charges vs costs confusion, in general and specifically at HL, aside, that figure on their company specific page will be the "generic" one for everybody and as published at some date in the past, but as you've already said, the actual is "a %age of the current value at the time of the report", and I note that several of your ITs have been on a bit of a roller coaster, so does that not just explain it?

I also note that in ASL's KID, https://www.fundslibrary.co.uk/FundsLib ... Ooh2mrAosv, it says:

"The cost figures shown in the “What are the costs?” section above may differ materially from the Ongoing Charges Figure published in the Company’s Factsheet, Annual Report and on the Aberforth website. This is because the methodology for the calculation of costs mandated under the PRIIPs Regulation includes the costs of any borrowing and estimates of transaction costs of buying and selling investments in the portfolio. Further information on the Company, including its latest Annual Report, is available at http://www.aberforth.co.uk"

Great, eh?

I suspect the same apples v oranges, aka is it charges or is it costs, exists with funds and ETFs too. The charges figures on HL for ETFs looks suspiciously like just their annual management fee on the few I've looked at.

Oh, and if you'd like some extra figures to throw into the mix try Trustnet ... for ASL they have Annual Charge: 0.70%, OCF: 0.81% ...

[Lootman]

This is under the Charges summary on the HL report as a definition -

- Charges made by fund/ ETF/ investment trust managers for managing your investments. These charges are already included in the fund's price, so they
aren't shown in your transactions.

I guess any broker or fund manager could make the argument that charges detract from performance and so there is no need to cite the charges - just look at the returns.

But that is a bogus argument. You want to know how high the charges are in order to see how much the returns have been impacted. We want to be able to see which funds have low charges and which have high charges, since you never know which funds will out-perform anyway.

It is instructive to look at the way this is handled with institutional funds and accounts. In those cases the client is billed separately for the costs and charges, usually quarterly. So the charges are very clear. The one exception, again, is the trading costs since they are so embedded in the fund activity that they cannot be broken out separately. And the biggest clue there is portfolio turnover.

But with retail funds all costs and charges, other than a platform fee, are buried within the fund. Fund managers are well known for dumping various costs into their retail funds because retail investors are a lot less picky than institutional investors.

[kanga]

OK, so these figures aren't "what I have been charged by HL"; they are what HL reckons is the ongoing cost of running the trust (which is done by Premier Miton - HL is saying what the figures are, not taking the money). Since Premier Miton's own KIID says 0.77% for portfolio transaction costs, and 4.45% for other ongoing costs (which includes 2.09% for gearing, ie borrowing), it is hard to know how HL has come up with a higher-still figure. Do HL not break it down in any way?

Thanks and no HL do not break it down. They do say to ask them if you want more info so that is what I shall be doing.....

[Alaric]

You want to know how high the charges are in order to see how much the returns have been impacted. .

Provided the Broker makes no custody charges and there is only one class of units, it doesn't greatly matter what the Broker discloses, because it makes no difference to the investor's return. That's true of ITs at least if not OEICs where some Brokers have special deals to put their clients in units with lower charges and others make a specific charge for holding OIECs as distinct from ITs, ETFs, shares etc.

[DavidM13]

I cannot answer your question as it would need detailed analysis and I do not have the time for that at the moment. However, where do you get the 'actual' from? There are different ways of measuring Ongoing Charges although I thought that the AIC issued instructions to IT managements on how they wanted them calculated. Personally, I look mostly at the management fees charged by the fund managers as that gives a good and hopefully reliable number as a base except of course for the few trusts that are self managed.

Things like transaction charges for buys and sells must vary so much even within a trust that I cannot see that they are very reliable. I think also some ITs include the interest cost on borrowings and after a while all of this begins not to make a lot of sense.

Dod

Yes. The methodology is on the website. Visible on each company profile page on the charging tab.

. I think also some ITs include the interest cost on borrowings and after a while all of this begins not to make a lot of sense.

It's worse than that. It's mandated nonsense from the FCA that KIIDs should include the cost of an IT's borrowings under expenses. Borrowing to invest increases risk, but it's not a cost comparable to the costs taken in fees to the managers.

The other piece of near fiction is the disclosure of the costs of churning. In other words how much is lost in the act of switching investments such as spread, commissions and stamp duty. I don't see why it isn't possible to bang a few accountant's heads togethar and disclose the actual amounts in the accounts.

This is exactly right. The AIC OCF is designed to ensure maximum comparability with its open end equivalents. So transaction costs and gearing are omitted form this figure to make them in line with the KIID (The open end `equivalent` of the KID). The charge on gearing without the associated benefits that gearing can give you is an annoyance. And in reality its not the percentage added via gearing that matters rather the cost of that gearing. By way of example. Scottish Mortgage Trust a year or so ago had to add around 0.34% for the cost of gearing, this made its OCF appear to be exactly double. But the gearing was long term, low interest rate debt so looked good in the fair valuation rather than a drain. It has got even better now and the fair value of the debt actually increases the NAV (as one can see in the daily announcements). To put it another way. With all else being equal, if one fund adds on 0.5% to its charge to buy 5% gearing and another fund adds on 0.6% to buy 15% gearing, the first one would look cheaper even though clearly it is not as valuable.

I have also been through my other ITs to compare. One other is Aberforth Smaller Companies (ASL) where both AIC and HL quote 0.75%, The KID shows a potential reduction of 1.09% but my actual charges are 1.28%........Another one that does not come close is HOT.

Well, for one, I think we've already clearly established that what the AIC (properly by the regulations, if not commonsensically!) publishes as the Ongoing Charges is basically just the annual management fee, and that what HL publishes as Ongoing Charge is actually Ongoing Costs.

Now, putting the charges vs costs confusion, in general and specifically at HL, aside, that figure on their company specific page will be the "generic" one for everybody and as published at some date in the past, but as you've already said, the actual is "a %age of the current value at the time of the report", and I note that several of your ITs have been on a bit of a roller coaster, so does that not just explain it?

I also note that in ASL's KID, https://www.fundslibrary.co.uk/FundsLib ... Ooh2mrAosv, it says:

"The cost figures shown in the “What are the costs?” section above may differ materially from the Ongoing Charges Figure published in the Company’s Factsheet, Annual Report and on the Aberforth website. This is because the methodology for the calculation of costs mandated under the PRIIPs Regulation includes the costs of any borrowing and estimates of transaction costs of buying and selling investments in the portfolio. Further information on the Company, including its latest Annual Report, is available at http://www.aberforth.co.uk"

Great, eh?

I suspect the same apples v oranges, aka is it charges or is it costs, exists with funds and ETFs too. The charges figures on HL for ETFs looks suspiciously like just their annual management fee on the few I've looked at.

Oh, and if you'd like some extra figures to throw into the mix try Trustnet ... for ASL they have Annual Charge: 0.70%, OCF: 0.81% ...

It is not just the annual management charge it includes other fees such as directors, auditors, administrators and those sorts of professional services. All the included charges are marked in the methodology.

As you say HL show the annual management charge (and separately the ongoing charge) and I think the Trustnet Annual charge for ASL is just the stated management fee too, the extra 0.11% for OCF they also show are those other fees I just cited above.

Although neither HL or Trustnet seem to account for the tiered nature of some annual management charges, or certainly doesn't using that single data point which is why they are different there.

[DavidM13]

OK, so these figures aren't "what I have been charged by HL"; they are what HL reckons is the ongoing cost of running the trust (which is done by Premier Miton - HL is saying what the figures are, not taking the money). Since Premier Miton's own KIID says 0.77% for portfolio transaction costs, and 4.45% for other ongoing costs (which includes 2.09% for gearing, ie borrowing), it is hard to know how HL has come up with a higher-still figure. Do HL not break it down in any way? (My HL account has long been dormant, so yes, I don't get these kinds of reports. The AJ Bell report I get lists 'ongoing charges' by each IT's fund manager, which, for ones I hold (no overlap with yours) vary from 0.86% to 1.29%. II is down for maintenance at the moment, and I don't save their charges documents, so I can't remember how they present them)

https://corporate-premiermiton.huguenot ... 2-2022.pdf

Note this KIID is using 'costs' - see the earlier posts.

I do not know but i would imagine HL need to calculate a `blended cost` based upon the known charges throughout the year. By way of example. PMGR brought out a KID for 31/12/2020 with a RYI figure of 10.11%, and then another KID for 31st July 2021 with a RIY figure of 5.77% and then another KID for 31/12/2021 with a RYI figure of 5.22%. So maybe they pro rated those figures, its certainly how one would intuitively think it should be done. The issue with this trust is because it is so small some of the charges have a big impact on the percentage rates.

Then again, even despite ALL THESE CHARGES it is 300% up over 10 years which is better than the MSCI World and the FTSE All Share

[mc2fool]

Well, for one, I think we've already clearly established that what the AIC (properly by the regulations, if not commonsensically!) publishes as the Ongoing Charges is basically just the annual management fee, and that what HL publishes as Ongoing Charge is actually Ongoing Costs.

It is not just the annual management charge it includes other fees such as directors, auditors, administrators and those sorts of professional services. All the included charges are marked in the methodology.

I didn't say the AIC's figure is just the AMC, I said it's basically just the AMC, as exemplified by e.g. AGT where the AMC is, as helpfully shown on their AIC charges page, 0.7% (and 0.6% for >£1bn), and the Ongoing Charges figure, also shown on that page, is 0.85%, meaning that the AMC makes up the vast majority of that figure.

I'm well aware of the AIC's methodology, if you look back in the thread you'll find that I was the one that linked to it very early on and, indeed, defended the AIC's figure as "by the book" (well, MIFID II).

Nobody is arguing that the AIC's published Ongoing Charges figures aren't by the industry standard methodology and regulations -- we're arguing that the industry standard methodology and regulations are, at best, a load of nonsense and, at worst, downright deceptive and misleading.

Again, looking at AGT and this time their KID and we see, oh yes indeed, their ongoing charges are 0.83% but their ongoing costs are 2.57%!

I would like to hope that the AIC, rather than defending such nonsense, would be lobbying to change it, and sure, I understand and expect the MIFID-II/industry-standard excuse but the AIC could at least publish the rest of the costs figures in addition to and alongside the current Ongoing Charges one, oh, and include links to the latest KIDs (why doesn't it do that already?!?).

But then I also understand that the AIC is there to serve its members, not the investors, and its members might not be happy to see the AIC highlighting how costly some of them are when all costs are shown....

[DavidM13]

Understood, and thanks for the helfpul clarifications you put earlier in the thread.

We don't link to the KIDs because we fundamentally disagree with them. The scenarios are misleading, the slippage cost methodology is questionable the SRI is incomparable with the KIID version even though it looks the same and also has questionable methodologies. More detail below.

https://www.theaic.co.uk/aic/news/press ... -suspended

https://www.theaic.co.uk/system/files?f ... gSep18.pdf

[EthicsGradient]

So in AGT's case, the manager AVI charges the 0.83% to run AGT itself, but, since it's a trust that invests in investment trusts, the "ongoing costs applied at the underlying portfolio" - "management fees, performance fees, carried interest, and gearing charges incurred by the closed-end funds into which the Company invests" are 1.39%, and there is also 0.28% for gearing.

I can see a justification for this - it indicates the total overhead on the underlying "real company" investments, that this "trust of trusts" approach (looking for trusts with a discount they think is larger than it should be) produces. Perhaps the problem is finding the nomenclature which makes this all easily apparent.

[kanga]

We don't link to the KIDs because we fundamentally disagree with them. The scenarios are misleading, the slippage cost methodology is questionable the SRI is incomparable with the KIID version even though it looks the same and also has questionable methodologies. More detail below.

https://www.theaic.co.uk/aic/news/press ... -suspended

https://www.theaic.co.uk/system/files?f ... gSep18.pdf

Thanks for your input.

I guess my question to you now, after my initial confusion , is how perhaps AIC could offer a more comprehensive view of expected charges when a user looks to compare investment trusts using your screening tools. Otherwise one has to then look up each individual trust to add that to the mix and transferring to another spreadsheet or whatever. I appreciate one should double check anyhow but in the initial look through it could be useful.
Or is what I am asking just not feasible?

[kanga]

I can see a justification for this - it indicates the total overhead on the underlying "real company" investments, that this "trust of trusts" approach (looking for trusts with a discount they think is larger than it should be) produces. Perhaps the problem is finding the nomenclature which makes this all easily apparent.

Agreed - although perhaps not the nomenclature but an agreed formula that makes sense if that's even possible?

[DavidM13]

We don't link to the KIDs because we fundamentally disagree with them. The scenarios are misleading, the slippage cost methodology is questionable the SRI is incomparable with the KIID version even though it looks the same and also has questionable methodologies. More detail below.

https://www.theaic.co.uk/aic/news/press ... -suspended

https://www.theaic.co.uk/system/files?f ... gSep18.pdf

Thanks for your input.

I guess my question to you now, after my initial confusion , is how perhaps AIC could offer a more comprehensive view of expected charges when a user looks to compare investment trusts using your screening tools. Otherwise one has to then look up each individual trust to add that to the mix and transferring to another spreadsheet or whatever. I appreciate one should double check anyhow but in the initial look through it could be useful.
Or is what I am asking just not feasible?

It is not data we have access to via our data provider Morningstar I am afraid.

[Dod101]

So in AGT's case, the manager AVI charges the 0.83% to run AGT itself, but, since it's a trust that invests in investment trusts, the "ongoing costs applied at the underlying portfolio" - "management fees, performance fees, carried interest, and gearing charges incurred by the closed-end funds into which the Company invests" are 1.39%, and there is also 0.28% for gearing.

I can see a justification for this - it indicates the total overhead on the underlying "real company" investments, that this "trust of trusts" approach (looking for trusts with a discount they think is larger than it should be) produces. Perhaps the problem is finding the nomenclature which makes this all easily apparent.

I find it difficult to justify all these charges being included in any IT's charges. Where does it/should it stop? Including the charges of the underlying ITs is like including the charges/costs of Unilever if you happen to invest in them. They do not produce their profits for nothing any more than an IT does.

If these Ongoing Charges are going to mean anything, they need to be standardised across all Investment trusts and for my part I would include only the portfolio management fees plus any other fees paid to the manager, plus the Directors' Fees and the cost of any other employees such as a Company Secretary (That is very often a separate charge by the investment managers but not always) I would make no attempt to include transaction costs although there is an argument that interest costs on borrowings ought to be included. I would definitely not include the costs of any underlying IT in which they invest, but the important point is that they are standardised across the industry if they are to be of any use.

Dod

[Alaric]

[Where does it/should it stop? Including the charges of the underlying ITs is like including the charges/costs of Unilever if you happen to invest in them.

I don't really think it's the same. You cannot buy directly into a selection of Unilever's multitude of businesses whereas you can buy directly into the ITs that the Fund of ITs will invest in. Disclosure where there are multiple layers of charges in collective investment schemes is necessary otherwise charges could be hidden.

[Dod101]

[Where does it/should it stop? Including the charges of the underlying ITs is like including the charges/costs of Unilever if you happen to invest in them.

I don't really think it's the same. You cannot buy directly into a selection of Unilever's multitude of businesses whereas you can buy directly into the ITs that the Fund of ITs will invest in. Disclosure where there are multiple layers of charges in collective investment schemes is necessary otherwise charges could be hidden.

Yes but the charges in the underlying ITs are not anything that the management of the 'parent' IT can do anything about and they are out of its control, so I do not understand why they should be included, even for the reason you state. However I may be in a minority.

Dod