A fairer deal for investment trusts

New rules on how investment trusts report costs should ditch the idea that investors only need to look at one number

Investment management. Portfolio diversification.
(Image credit: Getty Images)

I have slightly mixed feelings about the successful campaign to change the rules on how costs are reported for investment trusts. The sector has been treated harshly by the old rules, but there’s a risk of creating the impression that the way costs are calculated for trusts is entirely wrong. That’s mostly not true. The real flaw lies in how investors have been encouraged to compare different funds in a very simplistic way. 

Costs are important in investment – unlike returns, they are under your control – but you need to compare like with like. If you are buying a tracker – ie, an exchange-traded fund (ETF) or an index fund – you can readily compare the ongoing cost figure (OCF) between any two funds. You should also consider if one tracks its index more closely and whether the bid/offer spread is tighter, but the OCF gives you a lot of information. 

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.