by Val Cipriani, Investors’ Chronicle, November 30, 2023:
A reform of the requirements to disclose costs could increase demand for investment trusts, potentially helping to narrow discounts to net asset value (NAV) in the sector.
As part of last week’s Autumn Statement, the government published documents on how it plans to replace the current European regulations on investment products for retail investors, the so-called PRIIPs Regulation, with its own set of rules. The documents raised hopes that the change would help solve an issue with investment trust costs, which has reportedly put multi-asset managers off investing in them.
Current regulations demand that institutions and wealth managers who invest in the sector report investment trusts’ costs as part of their own, making their products look more expensive. Hawksmoor Fund Managers said that, partly as a result of this, “there can be no doubt that a significant portion of the UK’s investor base now no longer invests in the sector or is currently actively disinvesting”.
While open-ended funds are treated the same way, campaigners argued that investment trusts are fundamentally different because they are traded instruments. This means that their share price already reflects the market’s assessment of their financials, including fees.
James Carthew, head of investment companies at QuotedData, argued that firms should be expected to disclose only the costs they are responsible for. “Investors could then choose between independent financial advisers or wealth managers on the basis of the costs that these firms charge rather than any distortion introduced by those firms’ choice of investments,” he said. Carthew added that some of the costs that are included in the trusts’ ongoing charges figures are unhelpful. For example, gearing is an investment decision whose outcome is reflected in the trust’s performance, so should be separate from managers’ fees.
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