Charges on trusts

[hassettp]

Hi
I normally invest directly in shares.

I've been looking at trusts e.g. JUPITER MONTHLY ALTERNATIVE INCOME and I'm a bit confused about charges.

Hargreaves Lansdown quote:
Historic Yield - 6.79% and
Net ongoing charge - 1.73%
Average Annual charge - 3.3%

Are charges taken from capital or dividends?
If taken from dividends, is the historic yield before or after charges?

Thank you

[mc2fool]

Are charges taken from capital or dividends?

Yes.

Some many decide to take them from income and some from capital and some from a bit of each. You have to dig into their docs to find out which.

If taken from dividends, is the historic yield before or after charges?

After.

BTW, "trusts" needs to be qualified. Investment Trusts and Unit Trusts are quite different beasts, although I believe the above is true for both.

Jupiter Monthly Alternative Income is a unit trust.

[xeny]

The KIID specifies "Charges taken from the Fund over a year" - which to me says from capital, which would be reasonable for an income orientated investment.

It seems to be small and expensive, with a benchmark of CPI, which is hardly an ambitious goal to beat.

[mc2fool]

The KIID specifies "Charges taken from the Fund over a year" - which to me says from capital...

But isn't explicit. The Factsheet OTOH says: "A portion of the fund's expenses are charged to capital, which can reduce the potential for capital growth."

A portion. How much of a portion? Further research left as an exercise for the reader.

https://www.jupiteram.com/uk/en/individual/product-page/jupiter-monthly-alternative-income-fund-l-gbp-inc/

[DavidM13]

Page 21 of the annual report has the answer. Appears to be all to revenue account.

https://www.jupiteram.com/fe3bfcda-3010 ... 5cb94c10dd

[JohnW]

You're not a newcomer to selecting investment securities, from your posts about HPY, but either I'm missing something with Jupiter or you need to read around a little more. That fee seems unconscionable, so not out of place in the industry sadly.
If paying a 1.7%/yr annual fee isn't HYP thinking gone rogue then someone has a bit to answer for.
Jupiter seems to have 50% as stocks. You can get a blended fund with 50% stocks for an eighth of that cost. If you don't anticipate holding Jupiter for long, or put much into it, the extra fee impact would be modest. But use an online compound interest formula to see the impact of an extra 1.49%/yr in fees (spoiler alert: an extra £1000 in fees for £5000 invested for 10 years if you reinvest the dividends, and £740 if you don't). That's the first issue.
Morningstar researches fund returns and fees. High fees are associated with poorer returns, contrary to the normal 'the more you pay the better the product'.
‘The expense ratio is the most proven predictor of future fund returns. We find that it …and that’s also what academics, fund companies, and, of course, Jack Bogle, find when they run the data.’
‘So, the cheaper the funds, the better your returns. All told, cheapest 20% funds were 3 times as likely to succeed as the priciest 20% of funds.’
https://www.morningstar.com/articles/75 ... or-failure That's the second point.
The Jupiter fund is £155M big, actually small. Someone tell me I'm wrong, but that's tiny for an open ended fund that's been around for more than a decade. It's clearly not popular, which should be a worry. That's point 3.

[Alaric]

Jupiter Monthly Alternative Income is a unit trust.

As far as I can tell from https://www.jupiteram.com/uk/en/individ ... i-gbp-inc/, it's an OEIC (open ended investment company) that mostly invests in Investment Trusts. As seemingly a fund of funds be careful with any charge disclosure as to what it's disclosing. Does it include charges made by the ITs in which it invests?

Like other OIECs it can take its charges from income, capital or a mixture of both. Some OEICs will take their charges from capital so as to boost the distributed income in an attempt to appeal to investors less interested in capital performance.

[mc2fool]

Jupiter Monthly Alternative Income is a unit trust.

As far as I can tell from https://www.jupiteram.com/uk/en/individ ... i-gbp-inc/, it's an OEIC (open ended investment company) ...

Scroll down to Key documents and you'll find Jupiter Monthly Alternative Income Fund UT Annual Report. Also the Jupiter Unit Trust Range Brochure which has the fund listed.

[DavidM13]

Jupiter Monthly Alternative Income is a unit trust.

As far as I can tell from https://www.jupiteram.com/uk/en/individ ... i-gbp-inc/, it's an OEIC (open ended investment company) that mostly invests in Investment Trusts. As seemingly a fund of funds be careful with any charge disclosure as to what it's disclosing. Does it include charges made by the ITs in which it invests?

Like other OIECs it can take its charges from income, capital or a mixture of both. Some OEICs will take their charges from capital so as to boost the distributed income in an attempt to appeal to investors less interested in capital performance.

Yes it absolutely does. That is the double counting issue that has reared its head in recent times. I would guess that over half of that is due to the underlying fund charges. This will be bared out in the return and shouldn't need to be disclosed in the headline OCF in my view as it is an investment decision rather than money in Jupiter's pocket. However, the return is very poor too!

[Alaric]

Yes it absolutely does. That is the double counting issue that has reared its head in recent times. I would guess that over half of that is due to the underlying fund charges. This will be bared out in the return and shouldn't need to be disclosed in the headline OCF in my view as it is an investment decision rather than money in Jupiter's pocket. However, the return is very poor too!

Does it invest in any ITs or other structures that aren't available to the individual investor? If you are employing a fund manager to make your choice of IT for you, then your costs are both the ITs internal costs and the fund manager's vehicle for extracting their charges. If there's an advisor and platform involved that's yet another layer of costs.

[DavidM13]

Yes it absolutely does. That is the double counting issue that has reared its head in recent times. I would guess that over half of that is due to the underlying fund charges. This will be bared out in the return and shouldn't need to be disclosed in the headline OCF in my view as it is an investment decision rather than money in Jupiter's pocket. However, the return is very poor too!

Does it invest in any ITs or other structures that aren't available to the individual investor? .

Flicking through the annual report I don't think it does. They all look like `normal` CEFs to me.

Indeed. I am not a fan of fund of funds myself as I think i can do a better job in picking the winners and certainly a cheaper one. But if there was an advispr taking their cut then putting me in a fund of funds I think I would need a lie down!

[AndrewInDevon]

Instinctively I agree on cost layering in funds of funds. On the other hand Alliance Trust multi fund manager approach has performed very well over the last 12 months (holding Nvidia + not holding Tesla/Boeing + entering Japan at the right time).

I cant get excited by many peoples obsession about costs. What matters is performance net of costs, although I am all for transparency and a level playing field on disclosure. I want my VCTs to have high costs, as that means they are more likely doing proper due diligence and monitoring/partnering of their investments.

I like ITs for many reasons but its puzzling that they are quite small, with the exception of 3i and Scottish Mortgage, despite their 150+ year history.

[Alaric]

I like ITs for many reasons but its puzzling that they are quite small, with the exception of 3i and Scottish Mortgage, despite their 150+ year history.

Their closed end status means they only grow by the issue of new shares. Also for many years, being stock market investments, no commissions were paid if retail invrstors were advised to buy them or for that matter continued to hold them.

[Dod101]

Instinctively I agree on cost layering in funds of funds. On the other hand Alliance Trust multi fund manager approach has performed very well over the last 12 months (holding Nvidia + not holding Tesla/Boeing + entering Japan at the right time).

I cant get excited by many peoples obsession about costs. What matters is performance net of costs, although I am all for transparency and a level playing field on disclosure. I want my VCTs to have high costs, as that means they are more likely doing proper due diligence and monitoring/partnering of their investments.

I like ITs for many reasons but its puzzling that they are quite small, with the exception of 3i and Scottish Mortgage, despite their 150+ year history.

Alliance is also a big trust nowadays and there are probably others like JGGI but it depends on your definition of big

Dod

[DavidM13]

I like ITs for many reasons but its puzzling that they are quite small, with the exception of 3i and Scottish Mortgage, despite their 150+ year history.

If you go to the compare companies function on the AIC website and sort by "Total Assets" you can rank ITs by size. https://www.theaic.co.uk/aic/find-compa ... &desc=true

The reason they are so small is due to incentives. Asset Managers can make more money on the AUM on an OE fund as if people want to buy they just create more units making the overall fund bigger. If I want to buy a CEF it doesn't make the AUM any bigger as I buy an existing share.

And another incentive which Alaric already mentioned above. This means business models, legacy, knowledge, processes and systems are wired away from CEFs. Leaving the City's Best Kept Secret to lemons and similar

[AndrewInDevon]

The AIC website is great.

So in 150+ years only 5 trusts are >£5bn gross assets (as per the AIC website).
After 136 years Alliance Trust is <£4bn.
but after 13 years Fundsmith is >£24bn

Good points about the closed nature of ITs and also the lack of incentives for IFAs to sell ITs, plus IT purchases are subject to stamp-duty of course which might put some off.

Terry Smith wouldn't want an independent Board overseeing his baby or his ego, although he set Smithson up as an IT, which is already the 19th biggest IT after only 5 years.

I am coming to the view that ITs are optimal for infrastructure and renewables (ie operating assets where a company structure provides a lot of governance), probably operational property as well, but not sure they are right for equity portfolios such as City or Merchants etc.

There are two things that bug me about ITs . (1) they make a virtue of being able to hold on to distributable reserves so they can smooth out dividend payments and massage a 'dividend hero' outcome with annual increases. So they are are proud of holding on to my return which they may or may not give me in future years!? and (2) they make a virtue of being able to borrow - fine for infrastructure, renewables and property, but borrowing to buy equities is only OK if your time horizon is very very long (Oxbridge endowment long, say 100+ years).

[DavidM13]

The AIC website is great.
.

Agreed !!!

[Alaric]

. So they are are proud of holding on to my return which they may or may not give me in future years!?.

There are investors out there who look for sustainable and increasing levels of income. Whilst there are methods of achieving this from any income generating portfolio or indeed any portfolio, IT's do it for you. The return is still there, it's included in the net asset value and discounts permitting, also in the share price.

[scotia]

I'm a bit puzzled as to why you are concerned where the charges come from - I would be much more concerned on its performance
Over 5 years the total return on Jupiter Monthly Alternative Income is -1.2%
Your investment would have been more productive in a Bank account or possibly in Premium Bonds.
If you are looking for a shared equity investment (in Funds (OEICs), Investment Trusts or ETFs), you will find that a FTSE 100 index tracker has provided a total return of around 27% over 5 years while a developed world tracker has provided a total return of around 77%
If you are seeking a dividend higher than these trackers provide, then you will probably get a lower total return, but I would hope that you will find a total return significantly better than zero. I don't know why Jupiter Monthly Alternative Income has apparently performed so badly. I suppose that past performance is no guarantee to future performance, but I personally feel safer with investments that follow reasonably close to a geographic index.