Will investment trusts flee the country over cost disclosure?
Rumours are circulating in the City that investment trusts listed in the UK may be looking to move their listings as far as Switzerland to avoid old EU rules over cost disclosure.
Currently, UK institutions and wealth managers must ‘double dip’ and disclose investment trust costs as part of their own costs, making the products look more expensive.
While this is also the case for open-ended funds, investment trusts are traded instruments which, campaigners argue, means their market values should fully reflect fees.
Anger over this problem has pushed a rumour to circulate that at least one trust, with a value of more than £630m, is pondering a move to the Swiss stock exchange to avoid the problem.
The Association of Investment Companies, the industry body for investment trusts, told City PM that it had not seen any trusts seeking shareholder approval to delist from London and move overseas.
However, Richard Stone, chief executive of the AIC, was keen to note that the cost disclosure rules were “damaging investors’ ability to support the sector and we have been campaigning forcibly on this issue”.
“We continue to urge the Treasury to act swiftly to resolve the problem,” he added.
While the investment trust sector had been hoping that the reforms would be rolled into last month’s Spring Budget, Chancellor Jeremy Hunt made no mention of them in his fiscal event.
Last month, Abrdn, the third largest manager of investment trusts globally, warned that reforms to fix the problem were “at risk of stalling”.
“The closed end fund sector has weathered over one hundred and fifty years of market ups and downs on the global stage,” said Christian Pittard, head of closed end funds at the firm.
“It’s striking that the greatest challenge of recent times has been due to a technical issue closer to home – the UK’s interpretation of retained EU law.”
Ben Yearsley, director of Fairview Investing, also said he had not heard of any trust looking to move from the UK, adding that it seemed “a bit extreme” and was not sure if this was a “good road for trusts to go down”.
“What you might gain with removing cost disclosure issues, you may well lose by moving abroad as it may well cut off some investors from buying,” said Yearsley.
With some investors being reluctant to put money in Jersey or Guernsey listed vehicles, a trust moving to somewhere like Switzerland may be even more of a problem.
The AIC’s Stone also noted that boards would have to sober up and take a full view of what changing a company’s listing could mean, such as the new country’s market liquidity and access for investors.
“Directors would need to be persuaded that a change of listing could be in shareholders’ best interests before putting it to a vote,” he said.
“I fear that only when they are gone, will the government realise what a prized asset investment trusts are – particularly when we are trying to kick-start the economy via innovation and job growth,” added James Yardley, senior research analyst at Chelsea Financial Services.
“The sector needs intervention now to reverse these nonsensical and misleading cost disclosure rules.”