JEFF PRESTRIDGE: Funds that have cut charges deserve credit, but a big chunk of the investing industry has done nothing
Fund management charges eat into investors’ returns. The higher they are, the bigger the hurdle the investment manager has to overcome in order to deliver positive outcomes for those that have entrusted their hard-earned money to them.
Sadly, some investment managers aren’t very good at hurdling – and don’t justify the fees they earn for nothing better than mediocre work.
In any other profession, they would have long been sacked, but it’s a fact of investment life that most investors don’t vote with their feet and take their money elsewhere. As a result, substandard investment performance doesn’t get punished like it should do.
Forward thinking: There are a few investment houses that realise their investors and shareholders deserve a better deal
Thankfully, there are a few investment houses – and a number of dynamic boards of investment trusts – that realise their investors and shareholders deserve a better deal.
Especially given the trying times we now all find ourselves in. Thank goodness, I say. We – consumers and industry – all need to share a little bit of the pain that is around.
Edinburgh-based investment house Baillie Gifford is leading the charge. In recent weeks, it has tickled down the annual charge it applies to investment fund UK Equity Alpha – from 0.55 per cent to 0.47 per cent.
It has also reconfigured the charges it takes from investment trust US Growth which means that as the fund’s net assets (that is, assets less any borrowings) grow beyond £1 billion, any amount above that figure will attract an annual charge of 0.5 per cent instead of 0.55 per cent. Baillie Gifford has enjoyed a rich vein of investment form in recent years on the back of its commitment to some of the world’s leading growth stocks.
Trusts such as Scottish Mortgage have delivered spectacular returns as a result – one and three-year returns of 42 per cent and 148 per cent. Indeed, with assets of £21billion, Scottish Mortgage is by far the country’s biggest investment trust and a constituent of the FTSE100 Index. Its annual charges are 0.3 per cent.
Baillie Gifford says it has chipped away at fund charges on more than 15 occasions since 2013. Its view, as expounded by marketing director James Budden, is that it wants to be ‘as competitive on fees as possible as they are the only element of investment returns which can be guaranteed’.
You could argue that Baillie Gifford should be even more generous over fund fees. Yet in reducing charges, it’s doing the right thing and its focus on value for money should be applauded.
It’s not alone – other investment houses such as JPMorgan have also chipped away.
But there’s a big chunk of the retail investment industry that has so far done the square root of nothing. Time for them to lower their hurdles.
While regulator pontificates, empires have been and gone
While the regulator pontificates about helping its ‘staff work at pace,’ its investigation into the circumstances behind the sudden suspension of investment fund Woodford Equity Income in 2019 could not be any slower. It seems no further forward than it was 27 months ago.
Empires have been and gone in the time the Financial Conduct Authority has spent wondering what to do with those involved in this investment debacle.
Pace? Snail pace, more like. For investors who have lost money in Woodford, a little ray of light did shine last week when law firm Leigh Day said it had commenced court proceedings against Link, the company responsible for ensuring Woodford Equity Income adhered to all the rules (it didn’t).
Although the process will be drawn out – the case might not be heard in court before 2024 – Leigh Day is at least providing investors with the hope of future compensation. Something (hope) the regulator has so far spectacularly failed to offer.