The news this week that fees are going to be lowered at Fidelity China Special Situations (FCSS) from 1 April 2013 comes hot on the heels of the announcement from Baillie Gifford that it is also reducing the management fee at four of its investment trusts.
To date, it has usually—although not always—been the case that investment trusts as investing vehicles have been cheaper than their open-end peers on a cost basis, not least because of the lack of trail commission paid to advisers. In this respect, Fidelity China Special Situations has differed from even its investment trust peers as Fidelity pays 0.5% trail commission to advisers who put their clients into this fund.
The reduction of the fund’s annual management fee by 30 basis points to 1.2% is a step in the right direction, in our view. The fund still carries a performance fee, the structure of which we’re less keen on, but in reality this has yet to have an impact as the fund has underperformed its MSCI China benchmark thus far since its launch in 2010. Nonetheless, the reduction in AMC makes the fund a little more competitive when compared with its Morningstar China Equity category peers and shareholders will undoubtedly benefit.
Meanwhile, Baillie Gifford is cutting the management fee on four of its investment trusts as the firm has agreed a uniform scale with all four boards. For three of these funds this is very simply a reduction from a flat 1% annual charge to a new tiered scale of 0.95% on the first £50 million and 0.65% thereafter. With all three funds having a value exceeding £50 million, all shareholders stand to benefit from this move.
At the fourth fund, Edinburgh Worldwide (EWI), it’s a little more complicated. The headline rate actually goes up on the first £50 million by 15 basis points—to date the AMC has been 0.8%—but with the fund valued at more than £200 million, the overall fee each year should reduce as the tiering kicks in. After all, some £160 million will have fees levied at a rate that’s 25 basis points lower. Further, the performance fee is being scrapped. While that fee hasn’t been levied in the last four years, we like the fact the overall fee structure is simpler to understand under the new arrangements.
We like the fact that charges are reducing at these funds as it means a direct benefit to shareholders. While it’s not yet clear what the full impact of the RDR is on fund fees generally, we’re pleased to see these funds making an early decision and adding to their competitive edge.
