Danger of killing the goose that lays the golden eggs

STOCK market-listed investment trusts are a super way for investors to build long-term wealth. Many have been around for over 150 years, quietly delivering a mix of income and capital return for shareholders. In the process, some have a record of continuous dividend growth going back 50 years or more – nirvana for income-hungry investors. Others, such as Scottish Mortgage – the largest trust by a coun- try mile – have provided crucial capital to private companies specialising in space technology and batteries needed in electric cars. Though the Baillie Gifford-run trust has recently experienced a period of poor investment performance, its long-term track record remains impressive. Newer trusts have used their capital to invest in the infrastructure – wind and solar farms, and energy storage – vital to keeping lights on in homes and turning the economy a shade of green. Yet these stalwarts of wealth creation are under threat like never before. This is not because they have outlived their usefulness, or as a consequence of crass investment decisions. Far from it. They are struggling as a result of ill-thought-out rules – imported from the EU and implemented by the Financial Conduct Authority – which make the ongoing charges of some look very expensive. In other words, as appealing to investors as a night out in a gale on Ben Nevis. The rules are baffling and illogical. But, in a nutshell, if an investment trust or an investment fund (not stock market listed) itself holds trusts within its portfolio, the charges of these must be reflected in the overall charge it discloses to investors. To take but one example, the £663 million investment fund Gravis UK Infrastructure Income invests in firms financing vital infrastructure projects. Some of these are infrastructure orientated investment trusts. As a result, as well as disclosing its own fund charge of 0.75 per cent a year, it must also incorporate the fees of trusts in its portfolio. This bumps up its charges to 1.65 per cent. Off-putting? Of course. Ridiculous? Yes. These rules should be rescinded forthwith as they risk killing the trusts that are the geese that lay the golden eggs of attractive investor returns.