Publicly traded investment trusts are an excellent way for investors to build long-term wealth.
Many have been around for more than 150 years, quietly delivering a mix of income and capital returns for shareholders. Some also have a record of sustained dividend growth dating back fifty years or more – nirvana for income-hungry investors.
Others, such as Scottish Mortgage – the largest trust by a country mile – have provided crucial capital to private companies specializing in space technology and batteries needed in electric cars.
Although the Baillie Gifford-led trust has recently suffered a period of poor investment performance, its long-term track record remains impressive.
Newer trusts have used their capital to invest in the infrastructure – wind and solar farms and energy storage – that are essential to keep the lights on in homes and the economy green.
Yet these pillars of wealth creation are under threat like never before. This is not because they have outlived their usefulness, or as a result of poor investment decisions.
Far from it. They are struggling due to poorly thought-out regulations – imported from the EU and implemented by the Financial Conduct Authority – which make running costs seem very expensive for some. In other words, as attractive to investors as a night out in a storm on Ben Nevis.
The rules are baffling and illogical. But in a nutshell, if an investment trust or unit trust (not listed) itself has trusts in its portfolio, the costs of these should be reflected in the total costs it discloses to investors.
To take just one example, the £663 million Gravis UK Infrastructure Income investment fund invests in companies financing vital infrastructure projects. Some of these are infrastructure-oriented investment trusts.
As a result, the company must not only disclose its own fund costs of 0.75 percent per year, but also include fees from trusts in its portfolio. This increases the costs to 1.65 percent. Unpleasant? Naturally. Ridiculous? Yes.
These rules should be withdrawn immediately because they risk killing the trusts that are the geese that lay the golden eggs of attractive investor returns.
Jeff Prestridge