Costs and charges
I recently received our Costs and Charges Statement for 2020 from interactive investor. These statements are rather new and I was not sure how to use them. They give a net return figure for each holding. However, my objective is reliable and increasing income and the net return does not include dividends so is not very useful for me.
I then looked at the Product Costs, to be distinguished from the Service Costs, which are paid to ii. The majority were between 1 and 2%. The ones below 1% gave me a warm glow, eg Merchants at 0.54%, and some of these were helped by their size (Finsbury Growth and Income 0.73%, City of London 0.83%, Bankers 0.96%).
The middle category (1-2%) seemed to raise a number of questions. Alliance at 1.02% seems reasonable but then why is Witan, which has also outsourced its fund management, 1.61%? And surely Scottish Mortgage at 1.01% should be lower in view of its enormous size! I would expect trusts which have physical assets to manage (property, infrastructure, renewables) to have higher costs, such as GCP Infrastructure (1.30%) and HICL Infrastructure (1.23%), so Bluefield Solar has done well at 1.09%. Why is Henderson Far East Income 1.90% when Henderson International Income is 1.06%? Why is JPMorgan Global Emerging Markets Income 1.66% when Murray International is 1.08%?
At the high end I have HG Capital at 5.01%. I guess one should expect private equity to have a high cost reflecting the very hands-on management required.
I have seldom paid much attention to costs when making investments. Should I in future?
It's a minefield, how costs and charges are expressed; what is counted and what is not. In this case I think the broker is required to use a broad, inclusive definition that will include performance fees, brokerage charges for trading within the trust, probably the cost of borrowing if the trust has gearing, and carried interest for private equity trusts, making most of them look dreadful on this measure. Ultimately it is the net return (including dividends, I agree) that matters, and costs are rarely a decisive factor in my view unless perhaps you are comparing like-with-like within a single sector.