Iām trying to understand the charges involved with investment trusts, for example JPMorgan China Growth & Income (JCGI). Freetrade shows the below charges:
Stamp duty = 0.5% (paid on execution)
Ongoing charges = 1.24%
Transaction charges = 0.58% (also paid on execution I assume?)
My understanding is that the ongoing charge is already reflected in the share price, is that correct? Also, if was to invest 12 times over 12 months, I would essentially be paying 1.08% (stamp duty and transaction charges for each trade) x 12 = 12.96% of my investment would be spent on fees?
Transaction charges are already built in. The ongoing charge and transaction charges are the total cost to run the fund. As I understand it it lags behind so the cost shown is the cost for the previous year recalculated by the fund every year.
I prefer to look at the KID for the breakdown in charges.
The fees do get a bit murky with some Investment Trusts.
1.24%: The impact of the management fee payable to the Companyās manager (0.86%) and
the Companyās other costs of administration (0.15%).
Also included are the costs (0.23%) of borrowing money to invest, including interest and other fees but not the income or capital effects of investing these borrowings
Generally speaking I donāt factor transaction costs into the ongoing charge as it can change dramatically. If a Trust is growing rapidly then it transaction costs can rise as they are having to do more transactions. I think this trust falls under that category as itās grown from 250m in 2019 to 650m currently
OCFs stated are usually quoted āex-anteā - that Latin nonsense for āestimateā. They are deducted daily from the value so reflected in the price.
Transaction Costs are my favourite subject. Honestly. In summary : they are nonsense and built into the price but the regulator decided you needed to see them split out so you are aware there is a bid/offer spread when trading! But the methodology used to calculate them is utter madness. You think ācostā means ālossā??? No, no, no. Under the rules you could (but not in the future) claim a profit from the spread!! How, you ask? Honestly Iād have to write an essay . Itās too much for here. In short- ignore them. They are influenced by the market, by the funds mandate, by the funds growth/decline, by the frequency of trade, by the maths employed by the company in question. All in all - for a rule based in comparability - it does nothing to enable comparison.
I think Iāve written on it before, so search my rants on this forum for more details
But also be aware Investment Trust charges on all platforms, of all sizes are badā¦ and usually wrongā¦ if you think youāre paying x% per yearā¦ youāre probably not as data vendors are massively behind in feeding this data to end clients.
Hereās a good one to demonstrate. This is Freetrade specific but the issue is widespread and across every platform and every IT. This shows the scale of the āerrorsā some have and display to their clients.
I like Monevator and that article demonstrates that even some Bodies directly associated with investments actively dislike KIDs. I get that. They tend to dislike the forward looking projections mandated by KIDs that arenāt mandated in KIIDs. But what was Monevators conclusion? OK, KIDs arenāt great but they ARE a completely valid source of OCF ad Transaction Costs data. You could refer to the European MiFID Template or European Priips Templates (EMTs and EPTs) but a lot of Asset Managers often donāt include their ITs in that data. That leaves with only a select sources of data points to present to your clients. OCFs (presumably ex-post or, usually, ex-ante) from either Factsheets or KIDs. In the example above no documentation suggests the fund OCF is 0.88 as FT display. It can be either 3.33% as the KID displays (Ex-Ante, ie Estimated) or it could be the 2.91% that looks like an Ex-Post (ie. last years ACTUAL charge)
I guess I was just posting this to help explain the different ācostsā that come with Investment Trusts
I agree Transaction costs are mostly irrelevant. Likewise I also disagree gearing costs should be considered in the cost as they are actually often a benefit of the closed-end structure if used correctly.
I always go to the KID to understand the costs in better detail
