Our View: Put these KIDs to bed, now!


#1

Originally published at: https://whichinvestmenttrust.com/our-view-put-these-kids-to-bed-now/

There is something rotten about the FCA if it takes the investment trust trade body to fight for blindingly obvious, especially when that is the financial welfare of ordinary investors.

After scandals such as the PPI, and the regulatory disaster of the global financial crisis, you might expect the UK financial services regulator the FCA would be doing its utmost to avoid the next potential scandal. But if that were so, then why is the regulator forcing investment trusts to issue statutory ‘Key information Documents’ their own trade body not only argues are profoundly misleading, but are campaigning to have them suspended until the issues with them can be ironed out?;


#2

I am shocked at the FCA, what they are saying is so unfair and you are right @iansayers it is confusing to investors, including experienced investors like me.

The investment trust industry response you describe is admirable though, and hopefully the blog you’ve wrote will help get the message out there further.


#3

Yeah I think that will be an understatement @iansayers

This is a good example of why I prefer investment trusts, they have a much higher level of corporate governance that looks after the interests of little shareholders like me.

I wonder if there is anyway we can complain about the FCAs ridiculous stance with KID documents.


#4

I thought the FCA were tasked with the job of helping investors, of making like-for-like comparisons easier, plain English documents etc. It is a nonsense that KID documents from one investment will be completely different from another.

The FCA dictating the use of projections that flatter the potential performance is a disgrace. Those involved in making this decision need to sacked!


#5

Like it or no, the terminology and document content are EU requirements for products on sale to retail investors. Something that will be remedied by brex-IT perhaps?!!


#6

Has the EU really stipulated that UCITS funds don’t require KID documents for 2 years?


#7

I’ve had a read through of a few of these today and it’s unlikely that I will be doing so again - certainly not for the purposes of investment. One of the key pieces of information that is of interest to me is the level of gearing, yet this is barely mentioned at all, nevermind an actual level.

A figure which I do think is quite useless - at ieast when taken in isolation - is that for transaction charges. Being historical data, it tells me nothing about what the level of future portfolio turnover might be, and hence what the future transaction charges might be. Where such data might be useful is if it were to be combined in a (ten-year?) table with gearing levels and a comparison of performance against sector and/or peers, and over discrete annual periods. From such a table it might be possible to ascertain whether or not a manager is actually able to add value by being more active.

And a REIT such as Standard Life Property Income has to provide a KID, whereas REITs such as LondonMetric and Highcroft Investments do not.

Overal impression: if KIDs manage to kickstart someody into taking a genuine interest in understanding the products by keeping up-to-date with annual reports and factsheets, etc. rather than relying solely on ‘what you might get back in various scenarios’ tables, then they might be serving a purpose.


#8

UCITs currently have to comply with existing regulations and produce KIIDs. The situation will be reviewed after a period and the decision taken as to whether they should continue to do so or if they should hang out with the KIDs instead.


#9

That’s a really good idea @arkwelder first I’ve heard of it but it would be useful because trading costs can significantly impair returns.

I reckon the AIC and FCA should be talking to you.


#10

It sounds like KIDs were not deigned with investment trusts in mind @arkwelder hence no room for mention of gearing.


#11

I cannot fathom how on earth the FCA think that this is the right thing to do people like me, someone who tries to do my best managing my investments for my and my family. How do they think it won’t be confusing for us to use these KIK documents.

Are we supposed to just ignore them altogether?

Hat off the the AIC for their good work on this though. They really are doing the job of the FCA.


#12

I reckon these rules were made in Europe where investment trusts are practically unheard of and therefore they designed KIDS with no knowledge of how they work.

The FCA are probably to lazy to sort this out but if they don’t I see compensation claims coming from people and I reckon it’ll be the government who need to pay out this time as unlike with PPI the IT industry is warning them about this now.

I agree the AIC are doing a stellar job here. The report is written to be read unlike most gobbledygook reports.

Thanks to @Annabel_Brodie-Smith_AIC and all your colleagues including Guy Rainsford who was mentioned in the article and is all over the report.


#13

I think you mean Guy Rainbird @lukas :slight_smile:

I agree with your points though and your analysis of why the FCA is doing this.

Check out Scottish mortgage KID I’ve linked to below. Before you get to download it on the Baillie Gifford website, they display the following text:

The cost, performance and risk calculations included in the attached Key Information Document follow the methodology prescribed by EU regulation. An investment in the Trust may go down as well as up and past performance is not an indicator of future performance. An investment in the Trust is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses which may arise therefrom (which may be equal to the total amount invested).

Then if you read the KID they’re defo doing their best to make sure you’re not having the wool pulled over your eyes (wool pulled over your eyes - is that another goat joke?)
https://www.bailliegifford.com/en/uk/individual-investors/funds/scottish-mortgage-investment-trust/literature/

Like everyone else has said, the AIC are doing great here, thank to them Guy Rainbird, @iansayers @Annabel_Brodie-Smith_AIC and Prof. Kay (even though he has a terrible habit of speaking in gobbledygook!).


#14

It’s just crazy that the FCA are allowing this to happen.

I don’t take any notice of KID documents but less experienced investors will no doubt.

I hope the FCA listen to the calls from the AIC and from others and press the pause button here until they sort this out.


#15

Like others have suggested @arkwelder I don’t think they designed KIDs with investment trusts in mind. I agree with you on gearing, essential information.


#16

I never read Kid docs becasue i get the info I need from the factsheet,annual report or reading research on WhichInvestmentTrust.com or Money Observer.

They will defo catch some people out though so FCA, leave it out as my old man would say, pause or cancel these things altogether.


#17

@citygirl, Europeans don’t know what an Investment Trust is.


#18

Too true @james_pigott


#19

Thanks, and it’s odd how they are all average risk (4)!! Let’s buy the lot!