Investment Trust Charges - Confused

[Alaric]

'We uncover another puzzling fact about the market for equity mutual funds: Funds with worse before-fee performance charge higher fees. '

The material is about US funds. This may or may not be applicable to UK Investment Trusts, Unit Trusts and OEICs.

In the UK I think the real horrors for high charges are the funds, usually OEICs, that are only marketed via advisers. Being available to the general public and competing for attention on platforms geared to individual investors should give an incentive to ITs in particular to keep their charges competitive,

[BigB]

Hi all,

Apologies if this is reopening an old thread - I followed the maxim of searching before starting a new thread.

Today on Barclays SmartInvestor I got a quote on buying CTY, it included Product Cost of 0.92%. Morningstar quote Ongoing Charge for CTY as 0.36%.

I got quotes for 1k buy and up to 200k buy - service cost % changes with scale, but product cost always quoted as 0.92%. I tried to engage with Barclays Chat support to query why the quoted % differed from OC mentioned elsewhere.

Now looking at CTY factsheet from Morningstar, Ongoing charges quoted at 0.36%. However...

KID for CTY taken from Morningstar today at same time makes no mention of OC, but does mention a RiY figure of 0.97%, comprised of 0.11% portfolio transaction costs and 0.86% other ongoing costs (including investment manager 0.32%, admin 0.05% and cost of borrowing 0.49%).

This does raise a couple of point, going back to the original thread:
1. The detail of having these figures from differing sources is confusing, and can be unhelpful
2. With real world annual costs probably in the range 0.92-0.97%, this is not insignificant for all the buyers who would choose this IT as a 5% income product.

Is there somewhere that publishes the 0.97% type figures in tables, rather than the 0.36% figure?

thanks
B

[Alaric]

Is there somewhere that publishes the 0.97% type figures in tables, rather than the 0.36% figure?

The values quoted for ITs are in many respects misleading because of a rule which requires the actual costs of running the IT to have added to it the cost of the iT's borrowings. If the borrowings are invested profitably, that's a net gain to the shareholders rather than an expense.

[DavidM13]

Is there somewhere that publishes the 0.97% type figures in tables, rather than the 0.36% figure?

The values quoted for ITs are in many respects misleading because of a rule which requires the actual costs of running the IT to have added to it the cost of the iT's borrowings. If the borrowings are invested profitably, that's a net gain to the shareholders rather than an expense.

Exactly. It is a total joke of a methodology.

All platforms use data from the European MiFID Template (EMT) which is pretty much in line with data from the KID (Key Investor Document) which is a point of sale document you will find on the platforms.

The difference between the 0.36% and 0.97% is almost fully explained by the borrowing costs. The M* figures excludes borrowing costs (rightly so as this is an investment decision not a cost). It doesnt go to the manager's yacht fund, it is to help deliver superior returns in rising markets (and provides inferior returns in falling markets). Whichever way you cut it its not an expense and shouldn't be looked at in the same breath as management fees. One really need to see the level and quality of the debt, not just some random figure plucked out the air to make a judgement. ie. does the fund have long term debentures at horrible rates or has it locked in ultra low rates that are now available.

You will note similar with the ever popular Scottish Mortgage Trust. If one loops the gearing charges in with everything else it becomes an expensive trust. The reality is it is one of the cheapest active funds you are likely to see and even with 25% of the portfolio in unquoteds which are normally more expensive to research.

Back to this EMT that powers this platform. A new version has come out that also separates out gearing as well as having it from part of the total charges. Perhaps one day we can live in a world where that line items is also used in these cost disclosure scenarios alluded to above.