This week brought exciting news for investment trust fans. The Financial Times reported that the UK government has granted investment trusts a critical exemption from specific cost disclosure rules, potentially boosting share prices!
In a joint statement, the UK government and the Financial Conduct Authority (FCA) confirmed that investment trusts will no longer be subject to European regulations on cost reporting, specifically the Packaged Retail and Insurance-Based Investment Products (PRIIPS) rules.
These rules previously made investment trusts seem more expensive than other financial products. This was because wealth managers and private banks had to include the costs of these trusts in their “ongoing charges figure,” while other investments were not held to the same standard.
As a result, the old regulations inflated the costs of investment trusts, making them less attractive and unable to compete fairly with other financial products.
Will this change help reduce the wide discounts that have affected investment trusts in recent years?
Despite past challenges, the investment trust industry is celebrating. Some even suggest that this change could have an impact like the “Big Bang” financial deregulation of the 1980s, with the potential to significantly affect the UK market, the sector, and investors of all sizes.
Even if you’re not directly invested in trusts, their influence on the stock market and broader economy is essential. With £260 billion in assets, investment trusts make up a substantial 30% of the FTSE 250 index. They also help channel capital into critical sectors like infrastructure, renewable energy, and real estate, supporting the UK economy.
However, investment trusts still face some challenges. These include the rising popularity of index funds, wealth managers’ consolidation, and many trusts’ poor performance in recent years. But with the burden of cost disclosures lifted, the outlook is improving.
As I’ve often said, many investment trusts still offer great value, with some making a recovery in recent months. However, many continue to trade at significant discounts. Perhaps this change in cost disclosure rules will be the spark needed to reverse that trend!
If you are not an investment trust convert yet, you might consider checking out the returns of the top 10 performing investment trusts:
Before you decide to invest, take advice from an investment trust specialist, as many factors influence the value of investment trusts. A wide discount does not necessarily indicate you are getting a bargain. Discounts do impact performance. To illustrate the price of the funds and the associated discounts, we have broken down the top 10 investment trusts and their discounts in the four charts below.
UnaVida Wealth Management model portfolios include investment trusts. These may drag portfolio performance in the short term, but ultimately, the value will out. Please remember that investment trusts are for long-term added value and are best suited to patient investors.
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