The performance fee currently charges 17.5 per cent of all gains over the FTSE 250 index, which will cease subject to shareholder approval.
Separately the Throgmorton Trust, a small-cap trust run by BlackRock, is to reduce the cap on its fees to 1 per cent if the trust makes a loss and 2 per cent if the trust makes a gain – down from 3 per cent previously.
A growing number of trusts are looking to tap the retail investor market as a consequence of the RDR. Charles Cade (pictured), investment companies analyst at Numis, says the JPMorgan trust is particularly interesting given its strong recent performance.
The £165m trust is currently trading on a discount of 10.8 per cent to NAV despite outperforming the FTSE 250 in an excellent period for the index. “There has been a marked turnaround in JPM Mid Cap’s performance since Georgina Brittain took over, and we believe that the fund is an attractive way to gain exposure to the asset class on a discount,” he said.
“The board is responding to a growing consensus that simplicity is an advantage if funds are to attract interest from retail investors/IFAs following the implementation of RDR,” he added.
“This has led both boards and management groups to re-evaluate the benefits of performance fees. Although JPM Mid Cap’s base fee has been increased, it remains competitive versus the typical 0.75 per cent p.a. charge for the unbundled “clean” share class of an open-ended fund.”
The trust was taken over by Georgina Brittain in April 2012, and data from FE Analytics shows it has substantially outperformed the FTSE 250 since then, making 59.81 per cent as the index has made 36.41 per cent.
Performance of trust versus index since April 2012
Source: FE Analytics
Over the last year alone the trust has made 55 per cent in share price terms and 44.3 per cent in NAV terms.
“Performance was driven by stock selection and the positive impact of gearing,” Cade said. “Key contributions came from Ashtead, easyJet and International Personal Finance, as well as a number of housebuilders (Barratt, Taylor Wimpey and Persimmon) and value retailers (Sports Direct and Dunelm).”
The analyst notes that over the past decade, the FTSE 250 index has delivered a total return of 14.1 per cent a year versus 7.7 per cent for the FTSE Small Cap ex ICs and 9.0 per cent for the FTSE All Share, which he says illustrates the growth potential in that part of the market.
The £208.4m trust is another to have done very well over the past year, making 52.78 per cent in share price terms and 33.5 per cent in NAV. Despite this it is still on a discount of 7.6 per cent.
The Numis Smaller Companies plus AIM index has made just 27.16 per cent in that time.
Performance of trust versus index over 1yr
Source: FE Analytics
The trust has also decided to switch benchmarks to the NSCI ex AIM index following a steady reduction in the amount of the portfolio held in stocks listed on the market to under 20 per cent from 40 per cent. The switch moves it into line with the other funds in it sector. The managers will still be able to invest up to 25 per cent in the index.
The Throgmorton is unusual in that it holds contracts for difference [CFD] worth up to 30 per cent of net asset value.
Mike Prentis runs the long only portfolio of small cap stocks and Richard Plackett runs the CFD portfolio. The CFDs are both long and short meaning that the effective gearing is less than the 30 per cent of the trust that is held in the derivatives.
Cade rates the trust and its managers, and notes that the original strategy seems to have borne fruit.
“We regard Throgmorton’s management team highly and the fund has performed well over the past five years, with the NAV up by 170 per cent, compared with a rise of 132 per cent in the NSCI (ex ICs) and 130 per cent for the peer group,” he said. “It has also outperformed BlackRock Smaller Companies (156 per cent), suggesting that the CFD portfolio has added value.”
BlackRock Smaller Companies is a £376m trust that is also run by Mike Prentis but without the CFD overlay of Richard Plackett.
In share price terms the Throgmorton trust has made 191.66 per cent over five years, since just after the new managers took over, compared to returns of just 92.85 per cent for its current benchmark. BlackRock Smaller Companies has marginally outperformed in share price terms, however, having moved onto a tighter discount of 5 per cent.
Performance of trusts versus index over 1yr
Source: FE Analytics
The analyst does note, however, that all of the fund’s relative outperformance came in the period from late 2009 to early 2011.
The trust will also rename to the BlackRock Throgmorton Trust, which Cade says should help it find a private investor market.
“In our view, the rebranding is sensible as the BlackRock name should help the fund to attract interest from retail investors via platforms,” he said.
This weekend FE Trustnet will be looking at those investment trusts that are winning big from the RDR.
In another sign of the failing popularity of performance fees among investors Investec is also removing the charge from its Investec Enhanced Natural Resources fund, effective from 4 October.
The fund has been struggling in recent years as the commodities sector wanes, losing 12 per cent over three years.
