Henderson Investors is introducing a share class into its Oeic structure which features no front-end...
Henderson Investors is introducing a share class into its Oeic structure which features no front-end charge.
The so-called X Share class will still pay 3% commission to IFAs but not from the client's funds. Hendersons will be able to afford to pay the 3% by charging investors a 0.5% higher annual management fee than the conventional fee structure of the conventional retail or Class A shares.
In addition X-share investors will be penalised on a declining scale for the first six years. During the first two years an investor wanting to redeem an investment will be charged 4%, in the third year 3%, the fourth 2% and the last two years 1%.
The exit charges do not apply if the investor switches within the X Share class into another Henderson fund during the six years.
After this investors can switch into other share classes and take advantage of the lower annual management fees.
In terms of value for money over the six years the X-shares are cheaper than A Shares. Assuming a fund which achieves 10% annual growth for six years, a £1,000 investment in the A Shares with a 5% initial and a 1.5% annual management fee would return £1,537.08.
In contrast a £1,000 investment in X Shares with no front load and annual fee of 2% would return £1569.32. A £1,000 investment with no charges would return £1771.56.
The X Share investors may also get an additional initial cash benefit. Discount brokers Chartwell Direct and Hargreaves Lansdown have indicated any initial commission they receive could be rebated to the client or used to buy more shares for the investor. This means a £1,000 investment could rise to £1,030 on day one.
The idea of X Shares comes from the US where the equivalent B Shares now account for almost half gross mutual fund sales, increasing from 3% in 1990 to 44% in 1997, according to Hendersons.
Hendersons is not the first group to offer a no front load option on its funds, other groups have funds with no initial charges and declining exit penalties.
For instance M&G offers a number of unit trusts with no front end charges. M&G High Yield Corporate Bond has no initial charge, but a 1.25% annual fee. The exit penalties exist for the first five years and start at 4.5% and decline to 1% in the fifth year.
As well as offering an X Share, Hendersons will offer retail and institutional share classes.
All the new share classes will be made available when the group makes its conversion to Oeics, with the UK and European funds available from 4 September and the global funds from 2 October.
A special introductory discount of 1% on equity funds and 0.5% on bonds funds will be made on A shares only for the month of October. The initial charges on the retail shares are either 4% or 5% while the annual management fee is between 0.75-1.5%.
HL and Liberty SIPP slowest
Lifetime and annual allowances
'IFAs bore the brunt'
'Recovery or boom'