Guest blog by Frank Buhagiar
If one swallow does not make a summer, how many of the migratory birds does it take to herald the advent of good times? How about a score or more? At the last count that is roughly the number of investment trusts that have cut their ongoing management charges so far this year. And 2017 is no outlier. For a number of years now, funds across the sector have been revamping their fee structures, the net effect of which has been to reduce their charges. For investors looking for value for money in the investment trust sector, it seems the last few years have been one long hot summer.
2017 alone has seen a Who’s Who of leading names take steps to reduce their fees. Baillie Gifford stalwarts, Scottish Mortgage (SMT) and Monks (MNKS) have both moved to a tiered fee scale which has lowered their overall charges. So too have Templeton Emerging Markets (TEM) as well as four funds run by JPMorgan – JPMorgan European Smaller Companies (JESC), JPMorgan Japan Smaller Companies (JPS), JPM American (JAM) and more recently Mercantile IT (MRC). Keystone (KIT), Blackrock Emerging Europe (BEEP), Schroder Asia Pacific (SDP), Montanaro UK Smaller Companies (MTU), Aberdeen Emerging Markets Trust (AEMC), UK Mortgages Investment Trust (UKML) and Genesis Emerging Market (GSS) have all taken the simpler route and reduced their annual management fees. F&C Commercial Property Trust (FCPT) and Standard Life Private Equity Trust (SLPE) have opted to reduce charges by scrapping performance fees. Meanwhile, Invesco Perpetual Select Trust UK Equity (IVPU) and Invesco Perpetual Select Trust Global Equity Income (IVPG) have chosen to cut both their annual management charges and performance fees.
So what lies behind the largesse being shown by fund managers? Competition. The investment trust sector has been caught in a two-pincer movement: low cost passive/tracker funds on the one hand that have historically charged less; and the more expensive open-ended sector, where in recent years fees have been on a downward trend. Investment trusts already have a set of unique features to offer: the ability to top up dividends using distributable reserves; utilise gearing where appropriate; and the potential for investors from time to time to buy into funds run by well-respected managers at a sizeable discount to NAV. Throw in lower management fees and summer could be here to stay for a good while longer. And if not? Well cutting charges is one way to boost a fund’s performance, after all every basis point counts.