There are a few charges that may be applied to the funds in which you invest. Here we explain these costs in relation to our funds and why you may be subject to them when you invest.
The initial charge is the maximum amount that might be taken out of your investment before it is invested in one of our funds (in some cases, it might be less than this figure) and covers the cost of setting up your investment. For example, if you invest £1,000, an entry charge of 2% means that £980 of your money will be used to buy units in a fund. The initial charge varies from class to class, with some not having an initial charge.
Our unit trust range comprises dual priced funds. For these, the initial charge is included in the offer price at which you buy into the funds. Our range of ICVCs (Investment Company with Variable Capital) comprises single priced funds and, for these, the initial charge is added to the Net Asset Value price. The initial charge for our Funds is shown on our factsheets and Key Investor Information Documents (KIIDs).
There are no exit charges on Liontrust funds.
Charges taken from funds over the course of a year
This charge is to cover the annual costs of running and managing the fund. They are levied as a percentage of assets, with the level depending on the class you are invested in. These are shown on the factsheet and KIID for each fund.
Ongoing charges figure (OCF)
The OCF covers all aspects of operating a fund during the course of its financial year:
- Customer servicing
- Keeping a record of your investment
- Paying any income due to you
- Sending progress reports to you
- Telling you how much your investment is worth
Operating the fund
- Maintaining fund accounting records
- Valuing the fund assets
- Calculating the daily unit price
- Producing reports
- Complying with investment rules.
- Research into deciding where to invest and which assets to buy and sell
- Depositary / trustee oversight
- Safe-keeping of the fund's assets
- Auditor's fees
- Regulators fees
The OCF excludes portfolio transaction costs except for an entry/exit charge paid by the fund when buying or selling units in another fund and may vary from year to year. It is shown on the factsheet and KIID for each of our funds.
Portfolio transaction costs
Funds incur portfolio transaction costs when they buy and sell shares to achieve their investment objective. A significant proportion of these costs is recovered directly from investors joining and leaving the Fund through the bid/offer spread (see the section on Dual priced funds below for more details on the bid/offer spread) or via the application of a dilution adjustment (see the section on single priced funds below for more details).
In the case of shares, broker commissions and stamp duty are paid by the fund on each transaction. In addition, there is a dealing spread between the buying and selling prices of the underlying investments. Unlike shares, other types of investments, such as bonds, money market instruments and derivatives, have no separately identifiable transaction costs; these costs form part of the dealing spread. Dealing spreads vary considerably depending on the transaction value and market sentiment.
Comparing portfolio transaction costs for a range of funds may give a false impression of the relative costs of investing in them for the following reasons:
- Transaction costs do not necessarily reduce returns. The net impact of dealing is the combination of the effectiveness of the fund manager’s decisions in improving returns and the associated costs of investment.
- Historic transaction costs are not an effective indicator of the future impact on performance.
- Transaction costs for buying and selling investments due to other investors joining or leaving the fund may be recovered from those investors.
- Transaction costs vary from country to country.
- Transaction costs vary depending on the types of investment in which a fund invests.
- Transaction costs vary but are linked to portfolio activity.
Dual priced funds
Our range of UK-based unit trust funds are dual priced. This means our funds have an offer (or buying) price and a bid (or selling) price and the difference between these is known as the bid-offer spread.
When pricing one of our unit trust funds, the pricing agent begins by calculating the creation price, which is the basic cost of creating a new unit and includes the price of buying underlying holdings and dealing costs such as stockbroking commission and stamp duty. To calculate the offer price, the pricing agent adds any applicable initial charge to the creation price. It follows, therefore, that any party purchasing units is compensating existing investors for any dilution in the fund’s value caused by underlying fund transaction costs that may result from their unit purchase.
The bid price at which units may be redeemed by investors is made up of the price that would be received when redeeming the underlying holdings less dealing costs such as stockbroking commission and stamp duty. It follows again, therefore, that any party selling units is compensating existing investors for any dilution in the fund’s value caused by underlying transaction costs that may result from their unit redemption.
The spread between a dual priced unit trust fund’s bid and creation price will be dependent on the profile of the underlying portfolio of holdings. Funds transacting predominantly in less liquid, small cap stocks, where the underlying shares are traded on a wider spread and have higher associated dealing costs, will exhibit a wider bid to creation spread than funds predominantly transacting in more liquid, large cap stocks.
Single priced funds
Our range of UK-domiciled single priced funds are ICVCs (Investment Company with Variable Capital) and our Ireland-domiciled single priced funds are OEICs (open-ended investment company).
Shares in ICVCs and OEICs are bought or sold at the same single price, which is directly linked to the value of the fund’s underlying investments and therefore there is no bid-offer spread. An ICVC and OEIC fund, however, can apply a swinging price dilution adjustment to protect existing shareholders from the costs of buying and selling underlying investments that are incurred as other investors join or leave the fund. The dilution adjustment will effectively swing the price from the single mid-price to either a bid or offer single price for investors joining or leaving the fund. This is usually applied when there are large inflows or outflows given that the associated costs can dilute the value of the fund for existing investors.
ICVCs and OEICs can also apply a dilution levy. This is an explicit charge that the fund can apply to specific client investments or redemptions to cover any dealing or other associated costs that it may incur when buying or selling shares. A dilution levy, which can be up to 5% of the value of the amount invested or redeemed, is generally used in the case of exceptionally large deals as a proportion of the size of the fund.