With exchange traded funds and tracker funds so much cheaper than most actively managed funds, you have to wonder at the small steps some investment trust boards are taking to cut their charges.
Jupiter US Smaller Companies, managed by Robert Siddles at Jupiter Asset Management, has persuaded the fund manager to drop its performance fee, although as the value-driven fund has underperformed the Russell 2000 index in the past four calendar years, the impact of this largely cosmetic.
In addition, Jupiter has agreed to replace its flat base annual management fee of 0.8% of total assets, including debt, with a tiered charge. This starts at 0.75% for net assets, excluding bank debt, up to £150 million; falling to 0.65% between £150 million and £250 million; and 0.55% over £250 million.
Given the trust’s current net assets are £169 million, the immediate impact of this is also minimal, reducing the overall ongoing charges to 1.01% from 1.03%.
Chairman Gordon Grender, himself a veteran US manager in charge of the GAM North American Growth fund, claimed the aim was to make the trust more cost-competitive with its rivals and also Siddles’ open-ended Jupiter US Small & Mid Cap fund.
Siddles’ other fund has an ongoing charge of 1.05% meaning there is now a massive 0.04% gap between them! Hardly much to entice investors to the investment trust given its depressed shares have not done as well as the sister fund over five years.
More pertinent is JUS’s main rival in its small, three-strong AIC sector: JPMorgan US Smaller Companies (JUSC) managed by Don San Jose.
If the trust wants to compete, it needs to improve performance not trim fees. With an ongoing charge of 1.47% the JPMorgan trust is far more expensive than JUS, although investors may not mind as the more growth-oriented fund has delivered a total return of 180.6% to shareholders in the past five years.
By contrast, JUS has returned just 72.4%, less than half of its other rival, North Atlantic Smaller Companies (NAS), which has gained 147.9%. While JUS’ annualised five-year shareholder return of 11.5% looks good in isolation, it compares poorly against the Russell 2000 US smaller company index which has achieved 19%, according to Morningstar data.
That underperformance continued in its last financial year. The latest results show that over 12 months to the end of June its net asset value (NAV) grew by 15.7% in sterling terms, lagging the 26.5% total return from the Russell 2000.
Siddles, who persuaded the trust’s board to follow him when he quit F&C to join Jupiter four years ago, blamed his low exposure to strongly performing technology stocks. He said his preference for cheap value stocks, which enjoyed a brief revival after the election of President Trump, had also hurt relative performance.
Nevertheless, he remained confident that value stocks would mount a more sustained recovery in the year ahead. ‘After many years of underperformance compared to growth stocks, value stocks should benefit as rising interest rates derail growth stocks, many of which now look very overvalued,’ said Siddles in the trust’s annual report.
With the out-of-favour shares now trading more than 8% below their NAV, investors will hope the manager is right.
Eurotrust eges lower
Meanwhile Henderson Eurotrust, managed by Tim Stevenson, also used its annual financial report to announce a tighter grip on costs.
Its board has also negotiated a tiered fee: the existing annual management charge of 0.65% will now apply to the first £250 million of net assets, falling to 0.55% thereafter. As the fund currently has net assets of £263 million, the initial impact is again tiny, although it will become more significant if the trust grows in future on the back of its good performance.
Performance fees are unpopular with some investors so the board is curbing the amount it can pay fund management group Janus Henderson whenever it grows net asset value ahead of the FTSE World Europe ex-UK index.
It has lowered the cap on the performance fee to 0.35% of net assets and changed how it is calculated so it will no longer be paid in a period where either the share price or NAV declines.
This means the maximum total fees that can be paid each year has fallen to 1%, lower than the current 1.3%. This is a more significant change although it is largely a preventative measure to avoid a high fee rather than a cut to the existing charge.
Over the 12 months to the end of July, the fund grew its NAV by 24.3% slightly behind its benchmark’s 24.6% total return.
Stevenson increased the portfolio’s exposure to financials by 9.7% to 26.7% during the year, and benefited from rises in fund manager Amundi and ING bank which advanced in anticipation of the European Central Bank lifting interest rates from their near zero level. ‘This will help improve the financial sector earnings further,’ Stevenson explained.
Over five years, Eurotrust shareholders have reaped a 151.5% total return, ahead of the 120.9% average in the AIC’s Europe sector. The shares trade on a 3.8% discount, narrower than the sector average of 6.3%.