Closed-ended fund disclosures - UK

What is a closed-ended fund?

A closed-ended collective investment scheme is a type of fund which invests in various assets and is typically listed on the stock exchange. Such vehicles are bought and sold the same way shares in an individual company are, such as Tesco.

With closed-ended investment schemes, an investor generally needs a buyer (or seller) to redeem or purchase shares. As such, closed-ended funds often invest in more illiquid or specialist assets.

As they are bought and sold like other listed shares, it means other kinds of funds can also buy them. This includes “open-ended” funds, which also invest in the shares or debt of companies and other assets. However, in an open-ended fund, an investor can buy or redeem shares at any time – directly from the fund.

Do we offer closed-ended funds?

The funds we market and sell in the UK and Europe are predominantly open-ended. The BNY Mellon Investment Funds (BNYMIF) range is domiciled in the UK and BNY Mellon Global Funds (BNYMGF) domiciled in Ireland.

Do those funds invest in closed-ended funds?

Some do. But how much, for how long and in what varies from fund to fund. This is no different than any other holding within a fund.

Why do they invest in these?

For a variety of reasons, including diversification. Much like cash or other investable assets, closed-ended funds are a tool which fund managers can utilise to try and generate greater returns.

Our fund managers may use this type of investment to gain swift and efficient access to a particular asset class. For example, say a manager wants exposure to wind farms. Buying an investment trust invested in a wind farm is very different from directly owning shares in a renewable energy developer or construction company.

Your fund manager invests in such vehicles as a way of adding to returns. Although as with any investment they may make, there is no guarantee they will produce returns.

What’s changing?

At the moment, we reflect the cost of holding such funds in the ongoing charge figure of our UK and European funds. In line with the Financial Conduct Authority’s November statement, and advice from the UK trade body, the Investment Association, we are suspending this added detail. The cost of holding closed-ended funds is still reflected – as is any investment our funds make – in performance results. We are just removing its inclusion from the headline costs.

As a result, some of our UK funds may look less expensive than they did previously. However, investment in closed-ended funds has and will continue to be, a charge that is reflected within performance figures.

This differs from our EU-domiciled funds. EU rules require us to make investments in closed-ended portfolios explicit in our ongoing charges figure (OCF) and we will continue to do so.

Does this mean funds held in the EU cost more than those in the UK?

No. These are not new charges and the cost of holding closed-ended funds is still reflected in performance.

However, if you held a fund that produced a report (such as a KIID or a PRIIP) in both European and UK markets – the OCF included may appear differently. However, this does not mean the cost is different.

In the UK report, the OCF will not include the cost of holding a closed-ended fund, but the same fund’s report in Europe would.

For more information, please contact your regular sales contact or client services.

Open-ended v closed-ended

Closed-ended collective investment schemes, such as investment companies, are a type of fund typically listed on the stock exchange; they can be bought and sold the same way the shares in an individual company can. The difference is these vehicles are often pooled funds, meaning they invest in things such as the shares of companies or fixed income (corporate or government debt – bonds). They can also invest in other asset classes, some of which are more specialist in nature – like property or renewable energy.

As closed-ended investment funds are generally bought and sold the same as any individual company share is, other collective investment schemes – such as open-ended funds – can buy them.

BNYMIF and BNYMGF are both “open-ended”. Like closed-ended funds, they are a type of collective investment scheme in that they invest in other assets. However, in an open-ended fund, an investor can buy or redeem shares at any time – directly from the fund. With a closed-ended structure, an investor generally needs a buyer (or seller) to redeem or purchase shares. As such, closed-ended funds often invest in more illiquid or specialist assets.