Our recent note titled “Clarifying the Effect of Synthetic OCFs on Our Funds“, which featured in our regular quarterly publications, explained why our Funds’ Ongoing Charge Figures (OCFs) would be increasing to comply with the Packaged Retail and Insurance-based Investment Products (PRIIPs) legislation – despite no actual increase in the cost to our investors. We detailed why the OCFs would be increasing due to the apparent need to include the underlying OCFs of Investment Companies (ICs) – investment trusts and closed-ended funds.
In the meantime, we have been in constant dialogue with all the relevant parties involved in this issue: our peers, our Authorised Corporate Director (ACD) – Maitland Institutional Services Limited, and the Association of Investment Companies (AIC).
Our ACD, who is ultimately responsible for calculating our Funds’ OCF, has now definitively decided that the underlying OCFs of our IC holdings should not be included in our synthetic OCF calculation, meaning our published OCFs will return to their lower levels.
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This is because the Investment Association’s guidance on calculating OCFs has remained unchanged, despite the introduction of the new PRIIPs legislation. Their position remains that the costs that ICs incur (the AMC of the investment manager and other admin costs that make up their OCF) are levied at the Net Asset Value (NAV) level, but investors pay the share price of the IC – which can be vastly different to the NAV and trade at a premium or discount to that NAV.
For many of our readers and investors this discussion is entirely academic, but for many others this is crucial in how our Funds are perceived and in some case affects whether they can be invested in or recommended to clients. The inclusion of IC OCFs would make our own Funds’ OCFs much higher than those of our peer group (who might not invest in ICs) despite the fact that the fee Hawksmoor charges (our AMC, which is only part of the overall OCF) is certainly no more expensive than our peers’.
The award-winning performance figures that we show on our publications is the return that the investor actually experiences – i.e. after all fees have been deducted. As we have always argued, no matter what underlying assets a fund is invested in, the fund managers should be judged on their long-term performance after fees.
We hope we have demonstrated to you in the past the merits of our approach: that investment trusts give us access to a whole host of different asset classes that should not or cannot be accessed via open-ended funds, and that investing with truly active managers results in superior performance compared to index or passive funds.
Unfortunately, the issue of OCFs is an area where a great deal of confusion remains, but we will continue to do the right thing by our investors. This means continual communication and transparency about what an investment in our Funds entails and how the regulator and industry bodies instruct us to illustrate our performance and charges. We will always strive to ensure an investor in our Funds knows exactly what they are getting and how much they are paying.
This financial promotion is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. HA2620.