Since the start of 2011, we have been highlighting in a weekly article those directors of closed-end funds that have been buying, selling, acquiring or disposing of shares in their companies. At Morningstar, we’re firm believers in managers having their interests aligned with those of their investors, so any moves up or down in shareholdings naturally catch our eyes.
Over the last few weeks, we’ve noticed that a number of directors have monthly savings plans into their funds. For example, at Alliance Trust (ATST), the chairman and no less than three fellow directors (executive and non-executive) buy shares monthly in the trust.
Before we’re too lavish with praise, we need to examine the small-print in Alliance Trust’s annual report and accounts. The Remuneration Committee has put in place a policy that executive directors should “over time, accumulate a personal holding of shares in the company equivalent to their annual salary.” It’s a good policy to have, in our view, and ensures those directors’ interests are aligned with their shareholders’.
Although the directors at Alliance Trust may well be buying the shares as a result of this directive, this is a good reminder that monthly savings plans are an excellent way to invest. Most CEF providers offer this option and the minimum required investment can be much smaller than that of an OEIC. At F&C, the minimum amount an investor can put into a CEF per month is just £50, with a choice of 12 trusts in which to invest. Compare that with their OEICs, where the minimum monthly investment can be £1,000 or more. We’ve extolled the virtues of pound cost averaging before, in previous articles.
Let’s look at an example. JPMorgan Emerging Markets Investment Trust (JMG) is run by Austin Forey and Richard Titherington at JPM. A monthly investment of £100 since May 31, 2008 would now be worth £4,420--£1,120 more than the total invested (33 months at £100 per month); whereas investing a lump sum of £3,300 back in May 2008 would now be worth just £3,852--some £568 less. That’s before we take into consideration any dividends paid, though the difference between the two methods won’t be enough to outweigh the benefits of monthly savings.
Finally, if savings are made in an ISA, then there are tax efficiencies to be had, too. Any profit will be free from capital gains tax and any dividends paid will be free from income tax. So, if you need regular income, then a dividend-paying CEF in an ISA is something you should certainly consider.
