Boost for shareholders as Baillie Gifford cuts fees on four trusts
EDINBURGH-based investment house Baillie Gifford will reduce the fees it takes for running four investment trusts from the start of the year. It means more of the profits generated by the trusts will be passed on to shareholders.
The move by the employee-owned business continues a trend among stock market listed investment trusts to provide investors with better value for money. This year, data from trade association the Association of Investment Companies indicates that 37 trusts have lowered fees – against 27 in 2017.
The Baillie Gifford trusts with the welcome fee reduction are Edinburgh Worldwide, Pacific Horizon, Japan and Shin Nippon.
The annual fee charged on the first £50 million slice of assets managed by each trust will fall from 0.95 per cent to 0.75 per cent. On assets above £50 million, the fee will remain at 0.65 per cent on the next £200 million and 0.55 per cent above £250 million. The reduction will save each of the trusts £100,000 per annum, money that will help boost shareholder returns. Baillie Gifford, which manages just short of £200 billion of assets across a range of funds and trusts, argues that the cuts are part of its commitment to ‘offer value for money to investors’.
Its move is also an acknowledgement that many investment managers have reaped rich rewards as fund sizes have got larger but the management charge in percentage terms has stayed rigidly the same. James Budden, a Baillie Gifford director, says: ‘We are keen to pass on the benefits of increased scale to investment trust shareholders where possible.’
Unlike investment funds, investment trusts are overseen by independent boards whose job is to protect the interests of shareholders. Boards are increasingly putting pressure on investment managers to prove they are offering value for money.
The annual management fee on £1.4 billion trust Murray International, run by Aberdeen Standard Investments, is also falling. From the start of the year, the fee falls from 0.575 per cent to 0.5 per cent on the first £1.2 billion of assets.
Above this, the new fee will be 0.425 per cent.
ACCUMULATING wealth by investing in the stock market is a long- term journey. It requires patience and sometimes nerves of st eel when equity prices are falling and experts are predicting financial Armageddon.
For investors with exposure to equities via Individual Savings Accounts and pensions, this year has certainly tested the patience of many an investing saint. Equity prices across the globe have fallen, leaving investors feeling poorer.
Here, in the UK, the FTSE 100 Index has decreased by more than 8 percent in value while the broader FTSE All-Share Index has suffered a 9 per cent fall.
Even the Standard & Poor’s 500 Index, the main barometer of stock market performance in the United States, has suffered a 6 per cent correction.
A tsunami of factors have contributed to the poor performance of equities. In the UK, uncertainty over Brexit has been a negative force. Globally, trade ‘ wars’ – between China and the United States – together with mounting geo-political tensions and rising interest rates have all conspired to undermine investor confidence.
It is no surprise then that few investment funds – whether they are unit trusts or stock market listed investment trusts – have managed to improve investors’ wealth this year. Analysis by investment platform AJ Bell shows that only one in nine funds – and one in three investment trusts – delivered a positive return this year.
The table of top performers this year are dominated by investments with an American bent – and in particular portfolios dominated by technology or healthcare stocks.
The best performing investment fund of 2018 has been Baillie Gifford American, a £1.9 billion fund. Its portfolio is dominated by the so-called ‘Fang’ stocks – technology related companies Facebook, Amazon, Netflix and Alphabet (Google as was). Amazon is the biggest holding, accounting for nearly nine per cent of the fund’s assets.
Investment platform Hargreaves Lansdown says that the fund has been one of the most popular buys among investors this year. Other funds that have attracted big investor interest include Fundsmith Equity – run by legendary City fund manager Terry Smith – First State Asia Focus and Standard Life Global Smaller Companies. Funds that track specific stock markets have also grabbed investors’ attention – such as Legal & General US Index.
Among the popular FTSE 100 stocks this year, says Hargreaves, are Aviva, BP, Legal & General and Lloyds Banking Group – primarily because of the attractive dividends they are paying. The top performing investment trust of 2018 is Lindsell Train, a £1 billion portfolio managed by Nick Train, considered by most experts as one of the best managers of his generation. It has delivered a return of 37 per cent.
Train’s modus operandi is to buy ‘durable’ businesses at undervalued prices and then hold and wait for the stock market to price them more realistically.
Long-standing holdings include drinks giants Diageo and Heineken. The trust also owns Lindsell Train Limited, the investment business set up by Train to run money for assets. Indeed, Hargreaves says Lindsell funds UK Equity and Global Equity are among its top 10 investor buys of 2018.
Investment trust Lindsell Train also has the best record over five years with the top performers again dominated by funds investing in tech stocks. According to AJ Bell, the FTSE 100 Index is up nearly 25 per cent over the past five years with the FTSE All-Share up 26 per cent. Over the same period the S&P 500 is up 39 per cent.