How to find low-cost investment trusts
Many big funds refuse to cut their fees, even as they grow. But that's often not the case with investment trusts, says Merryn Somerset Webb. Here, she gives some low-cost examples.
I said in my editor's letter this week how nice it is when fund managers recognise the advantages of economies of scale and cut their fees as their funds grow. I don't see this happening very often in the unit trust world.
A group called TCF had the right idea when they launched a few years back on this basis, but sadly their performance has not yet encouraged much of rise in the asset base and the fee remains where it was.
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Look at a list of these and you will see many of our favourites. Personal Assets Trust is on the list with a slightly odd structured fee under £500m but a drop to 0.625% over £500m.
Troy Income and Growth (another top favourite) is there too with a fee falling from 0.75% to 0.65% over £175m. Also of interest is Murray Income, a great fund albeit one I rarely recommend for the simple fact that it usually trades on too high a premium for us (on the plus side it has recently fallen to only 1.5%).
However, the premium is mitigated slightly by cheapness the management fee starts at a mere 0.55%, and if the fund should grow to over £500m, it will fall to a fabulously low 0.25%.
RIT Capital (which is still in our core portfolio) is there too with a fee ranging from 0.5-1.5% and so is HICL Infrastructure.
The latter is not in my portfolio, but makes it into Alan Brierley's (Alan is one of the advisory panel for our portfolio) alongside RIT.
Others worth mentioning include Blackrock Smaller Companies, which impresses because its fee drops to 0.5% very fast (over £50m) and Dunedin Income Growth.
Dunedin has been an impressive performer over the last few years (see here for details), and if you want to be in large companies on the cheap, it is as good a place as any to go for exposure: the fee starts at 0.45% and falls to 0.25% if the fund size goes over £425m (it is currently £375m).
I'm also interested in Worldwide Healthcare. It has been an excellent performer recently, but as Brierly says, valuations in the sector are still "attractive and close to historical lows", while new drug launches are accelerating and innovation is on the rise. And the price? Excellent.
The fund currently has just over £400m under management. It charges 0.3% on the first £150m, 0.2% on the next £350m and if it goes over £500m that will fall to 0.125%.
Finally, if all you want is a fund that follows the market, you should take a good look at the Edinburgh UK Tracker Trust. It does exactly what it says it does and offers excellent value along the way: the first £100m of assets is charged 0.25%, the next 150m pays 0.1% and anything after that comes with a market beating 0.9% charge.
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