Ongoing charges - big differences AIC vs Platform/KIDs

[kanga]

I think I have been labouring under the misunderstanding that the AIC ongoing charges figures were what an individual pays to hold those trusts. However based on the numbers below that does not appear to be the case .
I would be grateful for any clarification.

I have just received my HL report with a breakdown of charges and 3 examples jumped out at me -
KID includes transaction costs
Actual - I can understand why there will be small differences here.

AGT - AVI Global Trust
AIC 0.85% HL/II 2.5% Kid 2.57% Actual 2.38%

PMGR - Premier Miton Global Renewables Trust
AIC 1.65% HL/II 4.45% KID 5.52% Actual 7.52%

APEO - Abrdn Private Equity........
AIC 1.19% HL/II 6.14% KID 6.18% Actual 5.9%

So 2 main questions -
1 - any specific reason why PMGR is so much higher than the KID
2 - what do the AIC charges refer to as they seem to bear no relation to ongoing costs/charges in these instances?

[Dod101]

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

[Alaric]

. 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.

[SalvorHardin]

So 2 main questions -
1 - any specific reason why PMGR is so much higher than the KID
2 - what do the AIC charges refer to as they seem to bear no relation to ongoing costs/charges in these instances?

KIIDs have several major problems. The biggest one is that they treat interest on borrowings as a charge for fees, but make no allowance for the investment returns that could be earned on the borrowings.

Premier Milton has debt so its interest will be added to the KIID's charges. In contrast open ended funds can't borrow (to any great extent) so they won't can't have increased KIID fees caused by debt.

I have seen worse. Law Debenture Investment Trust owns a professional services business. I saw a KIID calculation which treated the costs of running this business as fees to be charges to the investment trust which pushed its annual charge to something like 7%. Utter nonsense, but KIIDs are basically a box ticking exercise so their actuall usefulness is of zero interest to the bureaucrats.

KIIDs also fail spectacularly when it comes to American REITs, with many brokers refusing to let you buy shares in American REITs because their systems treat them as investment trusts requiring KIIDs. Whereas in the real world they are property companies and thus don't require KIIDs!

[mc2fool]

I think I have been labouring under the misunderstanding that the AIC ongoing charges figures were what an individual pays to hold those trusts. However based on the numbers below that does not appear to be the case .
I would be grateful for any clarification.
:
2 - what do the AIC charges refer to as they seem to bear no relation to ongoing costs/charges in these instances?

"Ongoing Charges" is not the total cost of holding an investment, it is one of the four costs as defined by the MIFID II regulations (and, BTW, it applies similarly to OEICs & ETFs). MIFID II regulates that:

"There are four types of cost that must now be disclosed separately on an investment fund, both before a fund is sold to an investor and on an ongoing annual basis:

One-off charges -- Paid when entering or exiting an investment
Ongoing charges -- Taken annually for managing the fund
Transaction costs -- Incurred when trading underlying investments
Incidental costs -- Ad-hoc charges (inc. Performance fees)

See https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/gb/en/policies/mifid-ii/mifid-ii-transation-costs-guide-en.pdf pages 3 & 4 for what falls under which.

There's a short video under Ongoing charges at https://www.theaic.co.uk/aic/glossary/o that gives an overview of what's included and what's not, and if you want the line-item-by-line-item nitty gritty, there's https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargescalculation.pdf, and both of those are directly accessible from the Charges tab of any company on the AIC site.

So, AFAICS, the AIC is presenting Ongoing Charges correctly, as per the regulations ... and really the question should be, why isn't it also showing figures for the other charges/costs, in particular Transaction costs? (One-off charges, such as initial charges, don't really apply to ITs, and to be fair the AIC does show performance fees).

[Alaric]

MIFID II regulates that:

MIFID II was an EU thing? So if it wasn't for the fact that the FCA probably wrote them, or helped write them, they could be dumped or replaced with something actually useful. In particular for ITs with borrowing costs and expenses in consolidated subsidiaries, cease the misleading practice of aggregating these with the management charges.

[mc2fool]

MIFID II regulates that:

MIFID II was an EU thing? So if it wasn't for the fact that the FCA probably wrote them, or helped write them, they could be dumped or replaced with something actually useful. In particular for ITs with borrowing costs and expenses in consolidated subsidiaries, cease the misleading practice of aggregating these with the management charges.

Sorry but did you just put "FCA" and "something actually useful" in the same sentence?!?

Yes, it's an EU thing and yes, from what I gather, the FSA (as was then) was a major driver behind it...

[kanga]

I think I have been labouring under the misunderstanding that the AIC ongoing charges figures were what an

There's a short video under Ongoing charges at https://www.theaic.co.uk/aic/glossary/o that gives an overview of what's included and what's not, and if you want the line-item-by-line-item nitty gritty, there's https://www.theaic.co.uk/sites/default/files/documents/AICOngoingChargescalculation.pdf, and both of those are directly accessible from the Charges tab of any company on the AIC site.

So, AFAICS, the AIC is presenting Ongoing Charges correctly, as per the regulations ... and really the question should be, why isn't it also showing figures for the other charges/costs, in particular Transaction costs? (One-off charges, such as initial charges, don't really apply to ITs, and to be fair the AIC does show performance fees).

Thanks.
I watched the AIC video and perused the accompanying blurb but my question still is why such a huge difference as per your ultimate para.

I can't be the only person on here with APEO, AGT or PMGR surely.......

For those who mentioned KID I only put that in to show basically that is what the platforms are quoting.

A comment from the AIC member who posts on here could be helpful.......

My questions remain.........

[kanga]

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

The actuals are based, as mentioned, on my HL charges, so will obviously differ due to discount/premiums and averages. However that cannot account for the big difference on PMGR - or I would not have thought so.
If the AIC figures are not what one would expect to be charged then irrespective of looking at other sources they appear very misleading to me. I haven't looked in detail at other holdings but they did not stand out in the same way initially.

[kanga]

So 2 main questions -
1 - any specific reason why PMGR is so much higher than the KID
2 - what do the AIC charges refer to as they seem to bear no relation to ongoing costs/charges in these instances?

KIIDs have several major problems. The biggest one is that they treat interest on borrowings as a charge for fees, but make no allowance for the investment returns that could be earned on the borrowings.

Premier Milton has debt so its interest will be added to the KIID's charges. In contrast open ended funds can't borrow (to any great extent) so they won't can't have increased KIID fees caused by debt.

Yes but my actual PMGR charges from HL are significantly higher even than the KID........?

[EthicsGradient]

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

The actuals are based, as mentioned, on my HL charges, so will obviously differ due to discount/premiums and averages. However that cannot account for the big difference on PMGR - or I would not have thought so.
If the AIC figures are not what one would expect to be charged then irrespective of looking at other sources they appear very misleading to me. I haven't looked in detail at other holdings but they did not stand out in the same way initially.

Your OP has 2 figures - one "HL/II" (Interactive Investor? If so, why is that "HL" as well?) and one "Actual". If "Actual" is "based on" HL, in what way is it "based"?

[mc2fool]

AGT - AVI Global Trust
AIC 0.85% HL/II 2.5% Kid 2.57% Actual 2.38

Ok, I've just taken a look at this first one, and as I've already explained, you are comparing apples and oranges -- and it doesn't help that HL is using the wrong figure. Assuming this is their latest KID: https://www.fundslibrary.co.uk/FundsLib ... HIoAhvs%2f ...

It says their Ongoing Costs is 2.57%, consisting of 0.07% of Portfolio transaction costs and 2.50% of Other ongoing costs, and of that it says:

"Other ongoing costs of 2.50 % includes: 0.83 % ongoing charges (per latest annual report), 1.39 % ongoing costs applied at the underlying portfolio, and 0.28 % cost of gearing."

So, the AIC says the Ongoing Charges is 0.85% whereas the KID says it's 0.83%. Not identical but close enough to, I reckon, say they're in agreement. Tick!

Meanwhile HL, at https://www.hl.co.uk/shares/shares-search-results/a/avi-global-trust-plc-ord-gbp0.02, says the Ongoing charge is 2.50%, which is what the KID describes as Other ongoing costs, so is just wrong. HL doesn't know its ongoing costs from its ongoing charges!

[UncleEbenezer]

Sorry but did you just put "FCA" and "something actually useful" in the same sentence?!?

Yes, it's an EU thing and yes, from what I gather, the FSA (as was then) was a major driver behind it...

The UK is responsible for more than its fair share of EU rules. A lot more! It goes back to Mrs Thatcher's greatest legacy, the EU Single Market, for which she was the #1 driving force and her civil servants wrote the lion's share of the rules. Even long after her time, the UK would generally lead in financial services.

[edit to add] One sentence. Do you think that if we abolished the FCA and the BoE, we could put something actually useful in their place?

[kanga]

Your OP has 2 figures - one "HL/II" (Interactive Investor? If so, why is that "HL" as well?) and one "Actual". If "Actual" is "based on" HL, in what way is it "based"?

HL and Interactive Investor quote the same figure on their pages.

I hold the trusts at HL so the Actual is what I have been charged by HL as a %age of the current value at the time of the report which is why I said I expected there to be some differences.

[kanga]

AGT - AVI Global Trust
AIC 0.85% HL/II 2.5% Kid 2.57% Actual 2.38

Ok, I've just taken a look at this first one, and as I've already explained, you are comparing apples and oranges -- and it doesn't help that HL is using the wrong figure. Assuming this is their latest KID: https://www.fundslibrary.co.uk/FundsLib ... HIoAhvs%2f ...

It says their Ongoing Costs is 2.57%, consisting of 0.07% of Portfolio transaction costs and 2.50% of Other ongoing costs, and of that it says:

"Other ongoing costs of 2.50 % includes: 0.83 % ongoing charges (per latest annual report), 1.39 % ongoing costs applied at the underlying portfolio, and 0.28 % cost of gearing."

So, the AIC says the Ongoing Charges is 0.85% whereas the KID says it's 0.83%. Not identical but close enough to, I reckon, say they're in agreement. Tick!

Meanwhile HL, at https://www.hl.co.uk/shares/shares-search-results/a/avi-global-trust-plc-ord-gbp0.02, says the Ongoing charge is 2.50%, which is what the KID describes as Other ongoing costs, so is just wrong. HL doesn't know its ongoing costs from its ongoing charges!

Thanks for taking the time to have a look.
It is the comparing of apples and oranges that I am querying. Quite happy to accept I was wrong to do so but then that only reinforces for me that there is little point in looking at AIC's figures to compare costs/charges of ITs when there is such a large potential difference.
I would have thought most private investors would be more interested in that figure reflecting ongoing charges that they would have to pay at the ned of the day.......but perhaps I am wrong in that as well

I am still however completely in the dark over the PMGR actual charges that HL have levied and was hoping that somebody else here held and could shed some light on it?

If not I will have to query directly with HL.

[EthicsGradient]

Your OP has 2 figures - one "HL/II" (Interactive Investor? If so, why is that "HL" as well?) and one "Actual". If "Actual" is "based on" HL, in what way is it "based"?

HL and Interactive Investor quote the same figure on their pages.

I hold the trusts at HL so the Actual is what I have been charged by HL as a %age of the current value at the time of the report which is why I said I expected there to be some differences.

HL have actually charged you 2.38%, 7.52% and 5.9%? If so, those are huge amounts (or do you mean over many years? - or are you buying fairly small amounts, so one transaction fee works out at that kind of percentage?)

[Dod101]

I will not repeat it all here but if you look up the Annual Report for AVI, you will see that they quote an Expense Ratio of 0.83%, that is their own Running Costs/Assets. See page 10 of the Report. That is not the Ongoing Charges Ratio as per the AIC which is the Expense Ratio plus the Underlying Charges Ratio of 1.27%, which makes the total 2.10%. The definitions are all in the AR.

These are not the same as your numbers. I do not know why because I think the IT's own Rep rt is the most meaningful.

What we need is the same calculation from all ITs so that we can meaningfully compare the one with the other and I think is what the AIC was attempting when it introduced the term Ongoing Charges Ratio.

I think in an y case including say the transaction fees is silly because they can vary from year to year depending on the activity in the portfolio.

As has been said, including the cost of debt is only one side of the transaction, the other being the benefit or otherwise of incurring that debt.

I think AVI's definition pf its Expense ratio is quite meaningful, because that includes of course the portfolio management fee and the company/IT's own expenses. Going beyond that and comparisons begin to get a bit woolly.

Dod

[mc2fool]

AGT - AVI Global Trust
AIC 0.85% HL/II 2.5% Kid 2.57% Actual 2.38

Ok, I've just taken a look at this first one, and as I've already explained, you are comparing apples and oranges -- and it doesn't help that HL is using the wrong figure. Assuming this is their latest KID: https://www.fundslibrary.co.uk/FundsLib ... HIoAhvs%2f ...

It says their Ongoing Costs is 2.57%, consisting of 0.07% of Portfolio transaction costs and 2.50% of Other ongoing costs, and of that it says:

"Other ongoing costs of 2.50 % includes: 0.83 % ongoing charges (per latest annual report), 1.39 % ongoing costs applied at the underlying portfolio, and 0.28 % cost of gearing."

So, the AIC says the Ongoing Charges is 0.85% whereas the KID says it's 0.83%. Not identical but close enough to, I reckon, say they're in agreement. Tick!

Meanwhile HL, at https://www.hl.co.uk/shares/shares-search-results/a/avi-global-trust-plc-ord-gbp0.02, says the Ongoing charge is 2.50%, which is what the KID describes as Other ongoing costs, so is just wrong. HL doesn't know its ongoing costs from its ongoing charges!

Thanks for taking the time to have a look.
It is the comparing of apples and oranges that I am querying. Quite happy to accept I was wrong to do so but then that only reinforces for me that there is little point in looking at AIC's figures to compare costs/charges of ITs when there is such a large potential difference.
I would have thought most private investors would be more interested in that figure reflecting ongoing charges costs that they would have to pay at the ned of the day.......but perhaps I am wrong in that as well

Oh I agree it's confusing (even more so than I'd thought!) and not particularly useful. My point was only to highlight that, actually, the AIC's figure (for AGT at least) for ongoing charges is the same as the KID's figure for ongoing charges, not to approve it as a good measure

Quite how the FSA/FCA has allowed the charges vs costs difference to come about and terminology like "...ongoing costs of 2.50 % includes: 0.83 % ongoing charges..." to become industry standards is beyond me.

[Lootman]

Transaction costs -- Incurred when trading underlying investments

So, AFAICS, the AIC is presenting Ongoing Charges correctly, as per the regulations ... and really the question should be, why isn't it also showing figures for the other charges/costs, in particular Transaction costs?

If by transaction costs you mean trade commissions, stamp duty and other costs incurred when the underlying portfolio is traded, then it seems to me to be fair to exclude those costs from the "ongoing charges".

The reason is that the frictional costs of trading will impact the return of the fund. It will reduce that return. So if those costs were also published as part of the ongoing charges then they would effectively be double-counted, and the fund would look worse on paper than it really was.

[kanga]

Your OP has 2 figures - one "HL/II" (Interactive Investor? If so, why is that "HL" as well?) and one "Actual". If "Actual" is "based on" HL, in what way is it "based"?

HL and Interactive Investor quote the same figure on their pages.

I hold the trusts at HL so the Actual is what I have been charged by HL as a %age of the current value at the time of the report which is why I said I expected there to be some differences.

HL have actually charged you 2.38%, 7.52% and 5.9%? If so, those are huge amounts (or do you mean over many years? - or are you buying fairly small amounts, so one transaction fee works out at that kind of percentage?)

I take it you don't have an HL account?

I received the Spring Investment report the other day which has a Charges summary detailing each investments charges. The ones I quoted are the individual IT charges from 1st May 2021 to the 30th April 2022. Does not include any separate HL charges - purely the individual investment charge. Since 2 of them appear similar to the HL quoted charges the one that I can only really question is PMGR

Unless anybody hold any of the investments elsewhere and pays significantly less for them?