Trusts with the highest TERs
| Name |
TER |
| Henderson Private Equity Investment Trust |
2.4 |
| Dunedin Enterprise IT |
2.5 |
| Henderson Global Investors - Henderson Financial Opportunities |
2.39 |
| Henderson Global Property |
2.86 |
| Ukraine Opportunity Trust |
4.2 |
Source: Financial Express Analytics
The companies with the highest total expense ratios (TERs) – the annual charge of a trust plus extra costs including custody fees – have generally made losses over a three year period, the research shows, while cheaper tracker funds have turned around positive numbers.
Performance of most expensive investment trusts over 3-yrs
Source: Financial Express Analytics
Henderson, which inherited some expensive vehicles from New Star, is the worst offender with three of its investment companies charging higher than the average trust TER of 1.4; Henderson Global Property, Henderson Financial Opportunities, and Henderson Private Equity Investment Trust. The property company made a meagre profit of 0.6 per cent over three years, despite charging investors 2.9 TER. The other trusts made losses of 20.7 per cent and 26.7 per cent respectively, with TERs of 2.4 and 2.9.
"These are very small, niche trusts, and any specialist trust will have a higher TER," a Henderson spokesperson said.
She added that Henderson Financial Opportunities, once managed by Guy de Blonay, and the Henderson Private Equity trust are both being wound up.
The most expensive investment company is also one of the worst performers in the entire AIC Investment Companies universe; the Ukraine Opportunity Trust. Although charging an eye-watering 4.2 TER, it has made losses of over 60 per cent in the three years to 3 December. The $12.5m fund has a high weighting in real estate and financials.
Conversely, those trusts which have the lowest TERs – mostly tracker companies – have given investors a positive return.
Trusts with lowest TERs
| Name |
TER |
| JP Morgan IT - JP Morgan Elect Managed Cash |
0.2 |
| Aberdeen Asset Managers - Edinburgh US Tracker Trust |
0.3 |
| Aberdeen Asset Managers - Edinburgh UK Tracker Trust | 0.34 |
| Henderson Global Investors - City of London IT |
0.37 |
| Alliance Trust - Alliance Trust |
0.69 |
Source: Financial Express Analytics
One of the top performers is the £2.4bn Alliance Trust, which has returned 10 per cent to its investors over three years despite a tiny charge of 0.69. The group was trading at a discount of 16.7 per cent on 6 December.
Other winners from the study include Edinburgh US Tracker Trust and Henderson's City of London IT, which returned 16.2 per cent and 12.5 per cent respectively over the three years. The Edinburgh trust is trading on a discount of 5 per cent, while the City of London IT is on a premium of 1.5 per cent.
Performance of cheap trusts over 3-yrs
Source: Financial Express Analytics
Ian Overgage, acting communications director at the Association of Investment Companies ( AIC), said: "Analysis of TERs is very worthwhile as they do represent a 'drag' on performance. Investors need to consider charges alongside their other investment criteria.
"Higher TERs are typically associated with more specialist investment companies and many of the recently launched investment companies fall into this category, either because of their geographical remit or because they are investing in the likes of biotechnology and infrastructure.
"Many specialist funds will have a higher risk profile and more potential for short term volatility so investors need to be willing to take a very long term view and make sure that their portfolio is balanced in accordance with the risk they are prepared to take."