Two trends on charges seem to be emerging. First, many boards are abolishing performance fees. Good.
Second, they are keen to introduce ‘blended’ fees, acknowledging the fact that there are economies of scale when it comes to the investment management of a trust. So, the norm is increasingly a set fee on a trust’s assets up to a certain size – and then a lower fee on any assets above that level. As a trust grows in size, shareholders get a bigger slice of the cake. That is the way it should be.
With new-style key information documents now providing explicit details on investment trust charges – including portfolio transaction costs, ancillary fees, as well as the management charge – downward pressure on fees should remain strong.
Good news for investors, new and old.
Taking a vote
Of course, not everyone is prepared to play ball as recent events at Invesco Perpetual Enhanced Income have highlighted.
When this trust’s board recently flexed its muscles on charges – not surprising given Invesco took charges in the year to the end of September 2017 of 1.86 per cent – Invesco initially accepted its lot. A new blended fee working out at 0.77 per cent per annum was agreed. A performance fee was disbanded.
But Henley-on-Thames-based Invesco then changed its mind.
It offered its resignation, forcing the board to go shopping for new investment managers. But Invesco was not quite finished. As a significant shareholder in the trust, it has now decided to requisition a vote calling for both the trust’s chairman and a key director to be replaced.
The objective, it seems, is an attempt after all to cling on to the management contract. Get rid of the awkward squad (chairman Donald Adamson and director Richard Williams) and Invesco believes it will be able to get its way.
As things stand, Invesco has a big chance of winning the vote. Not because its actions are right (they are not), but because many of enhanced income’s shareholders will find it nigh impossible to vote because their investments are held through investment platforms.
Most investors holding shares in this way will not even be made aware that such a key vote is taking place. Those determined to vote will have to jump through many hoops to do so.
Invesco’s behaviour on enhanced income does little to enhance its reputation as the friend of the small investor.
It is also throwing a spanner in the way of all the good work the AIC has done to continue to make investment trusts both relevant in today’s ferociously competitive retail fund management sector and investor friendly.
Let us hope Invesco sees sense and backs down before it harms the investment trust cause.