JEFF PRESTRIDGE: Ridiculous accusations can knock the wind out of the sails of trusts

Investment trusts are an excellent way to gain long-term exposure to equities. Many of these publicly traded vehicles – also called investment companies – have been around for more than 150 years, quietly providing a mix of regular income and capital gains for patient shareholders.

For investors like me and you, they are ideal because they provide access to a basket of stocks and markets under one umbrella.

In terms of costs, they also offer value for money, with many trusts reducing their fees as they grow in size.

In recent years, they have also paved the way for investors to obtain attractive income from the sector’s heavy investments in green assets such as wind farms, solar panels and energy storage facilities.

These trusts are doing exactly what fund manager Richard Buxton says this country’s pension funds and capital markets should be doing more of: providing the capital needed to get the ‘Big One’ back in Britain.

Yet a mix of regulatory shenanigans and trade association nonsense (from The Investment Association) threatens to undermine the great work they do – for investors and for all of us when it comes to oiling the wheels of the economy. And boy, do those wheels need lubrication?

New – and downright crude – guidance on how unit trusts (also known as unit trusts or Oeics) and investment trusts should now calculate their ongoing annual charges is reducing their appeal.

As a result, investment platforms are removing some funds from their sites due to cost concerns, while major asset managers and investment funds are divesting from their mutual fund investments to reduce their own quoted ongoing costs – and deflect criticism that they are not providing consumers with value for money.

Although investment trusts are listed companies – like most shares held by funds and asset managers – their underlying fees must now be reflected in the ongoing charges disclosed in the Key Investor Information Documents (KIDs) published by a fund or trust that as part of their portfolio.

The effect is to make the total running costs of the fund or trust in which they are held – ridiculously referred to in documents as synthetic costs – artificially expensive.

For example, Gravis UK Infrastructure Income is a £641m investment fund that invests in companies financing key infrastructure projects. This includes offshore wind farms and solar energy farms.

Embedded in the investment objectives is a commitment to providing investors with ‘exposure to a vital sector for the UK economy’. Currently, it produces a quarterly income equivalent to about 4.5 percent, which is not as attractive as it once was when interest rates in the broader economy were lower. Although the fund’s managers cap ongoing annual charges at a reasonable 0.75 percent, the new disclosure requirements require them to show investors a “synthetic” ongoing annual charge.

This accounts for the 0.75 percent fee PLUS an average of the annual fees of the 22 investment companies it has in its portfolio – such as Greencoat UK Wind and Bluefield Solar Income. The fund’s remaining ten holdings (e.g. National Grid) are not investment trusts and are therefore ignored.

The result is that Gravis now shows an ongoing annual fee of 1.65 percent in its investor information. A figure that is hugely misleading, but even more damaging for everyone – investors, investment platforms and asset managers.

The knock-on effects are enormous. Gravis could divest its mutual fund investments to reduce the fund’s synthetic annual fees – and make the fund more investor-friendly. But since fund managers can get most of their infrastructure exposure through listed investment funds (for liquidity reasons), the Gravis vehicle would struggle to find replacement investments. In the worst case, the country could give up the ghost and accept that it can no longer fulfill its investment mission.

For investment trusts, selling their shares so the funds can reduce their own costs would be catastrophic. Reduced demand for mutual funds is driving their prices down and widening the gap between asset values ​​and stock prices.

It would also jeopardize their ability to finance the drivers of economic growth, such as infrastructure spending and investments in renewable energy. A number of consumer-conscious members of the House of Lords have become aware of this issue.

Baroness Ros Altmann describes the new fund cost guidelines as a ‘spectacular own goal’. She says the Financial Conduct Authority (FCA) must step in and put an end to this nonsense.

It is a view shared by Baroness Bowles of Berkhamsted. She says the new guidelines are “flawed and misleadingly exaggerate costs.”

She added: “The question that needs to be answered by the government and the FCA is existential. ‘Do you want these types of investment vehicles (mutual funds) or not?’

‘Only a fool would say no when it is exactly what the Chancellor and leading academics have prescribed – namely tools for pension funds and private investors to invest in the UK economy and its vital infrastructure.’

Baroness Bowles says the FCA – or Treasury – must act urgently to put an end to the current nonsense.

She also says it is “incredible” that the guidelines, which stem from a “bad piece of European Union legislation”, have been allowed to repeat themselves throughout the post-Brexit regulatory environment, with the FCA doing little more than “on its hands sit’. .

No surprises there. Time, I think, for the FCA to earn its keep and right a wrong.

The demise of mutual funds would be a blow to both investors and the health of an already shaky economy.

A £2,215 car renewal costs the biscuit

Saga wins the award for the most outrageous insurance premium I’ve seen so far this year. It was received by Janet Clark, a 64-year-old administrator from Woodford Green in Essex.

Last month she received the renewal premium for her Mercedes B200, a car that she drives no more than 5,000 kilometers per year. She also hasn’t filed a motorcycle claim in at least 20 years.

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

Covered: Saga wins the award for most excessive insurance premium so far this year

Renewing your policy, Saga said in Janet’s renewal announcement, “means another three years of hassle-free insurance.”

“I thought there was a typo in the renewal price,” Janet told me last week while spending a few days at a Spanish boot camp with colleagues from her local gym. “I doubted the quote twice, but it was correct.”

Although Saga offered her a £40 loyalty discount, she looked elsewhere and was offered cover from Aviva for £756.96 (one year only, not fixed for three years).

She tried a tactic her husband had used successfully at Saga earlier this year and asked the insurer if it matched Aviva’s quote. It didn’t work, so she went with Aviva.

“I accept that I have had an exceptional deal with Saga over the past three years,” Janet said. ‘But £2,215 is the biscuit.’

Did your insurer take the cookie? Email me at jeff.prestridge@mailonsunday.co.uk.

Extraordinary people

The world is full of extraordinary people like Rob Burrow (Rugby League legend) who defy all odds. He was diagnosed with ALS four years ago, but with the support of a loving wife (Lindsey) and their three children (Macy, Maya and Jackson), he continues to fight on.

The documentary about his life (Rob Burrow: Living With MND) narrowly missed out on a National Television Award last week.

Another extraordinary person defying the odds is Lee Evans, who has Duchenne Muscular Dystrophy. Although people with this terrible condition have a life expectancy of 30 years, Lee is still going strong at the age of 48 (his brother died from it, at the age of 26).

Lee has written about the battle against this deadly disease in his new book I’m Still Standing. It’s both a hoot to read – and inspiring. It’s available from Amazon for less than a tenner.