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Amidst the gloomy Eeyore narrative of Labour’s messages on the state of the country’s finances, there has been a glimmer of late summer sunshine in the form of the long overdue correction to the flawed cost-disclosure rules that have blighted the investment trust sector over the last two years.

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The Private Members Bill brought about by Baronesses Altmann and Bowles was one of 25 to be considered by the House of Lords under the new Labour Government. It had survived three readings in the previous Conservative Government but stalled at the calling of the election.

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An assortment of EU regulated acronyms had required investment trusts to artificially inflate their annual investment management fees by adding the corporate running costs of their investment companies when such costs were already baked into the share price.  To potential investors it therefore appeared that the fees to manage an investment trust were higher than those of unit trusts. It’s important to emphasise that this additional fee, whilst disclosed, was not actually an additional fee paid by the investor, as it never existed!

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It is hoped that the removal of this requirement for investment companies to double count costs will bring back demand, in particular pension funds, that were discouraged from buying into this sector because of FCA cost restrictions and who ended up buying overseas instead. The reform is also likely to benefit the “Alternative” asset classes such as renewables, infrastructure and private equity that had been sold or overlooked by wealth managers. Combine this with a reduction in interest rates and this asset class looks very good indeed.

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It is hoped that the removal of this double-count cost will reduce the recent slump in investor demand that has seen shares fall to an average -14% discount to their underlying investments. On the other hand, the discount is great news for new investors!

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Comments from James Scott-Hopkins, Founder, EXE Capital Management