Well-meaning but flawed: the new Key Information Document

From 1^st January all investment trusts have had to publish a Key Information Document (KID) before their shares can be made available to retail investors. This sort of standardised information can be useful, but unfortunately some of the prescribed content can be highly misleading.

One of the most surprising aspects of the new KID is that the investment trusts are not allowed to include their historic returns. Instead of publishing a chart and the performance data they are required to illustrate the potential investment outcomes under four different scenarios − Stress, Unfavourable, Moderate and Favourable – over periods of one, three and five years.


The analysts at Numis point out that these calculations are based on the share price returns over the previous five years, which was a really strong period for the markets, hence the reason that some of the numbers look highly optimistic. A case in point is Scottish Mortgage, which has benefited from its exposure to the large US tech stocks. As a result of this it is showing five-year returns of 23.1% per annum under the Moderate scenario and 10.7% under the Unfavourable scenario.

Another contentious area is the cost data. In some ways this is better than what is currently available as it splits out the portfolio transaction costs, other ongoing costs and performance fees and illustrates the total estimated cost on a £10,000 investment over a one, three, or five year holding period.

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The problem is that by aggregating different elements like the annual management fee, other expenses and finance costs, it makes it harder to make a valid comparison between different funds. Some of the transaction cost estimates also look dodgy with some funds reporting a negative cost due to the calculation methodology.

Each investment trust has been given a risk rating with the ranking running from very low risk (a rating of 1) to very high risk with a rating of 7. For the most part it seems a reasonable approach, although Numis believe that a few relatively high risk funds like Honeycomb and VPC Specialty Lending have been ranked as relatively low risk as their lack of liquidity has resulted in low historic volatility.


The KIDs are displayed quite prominently on the various retail investment platforms and they are also available on each investment trust’s website, but are they worth looking at?

If you are an experienced investor and familiar with investment trusts I would suggest that you start with the factsheet and then move on to the more detailed information in the latest accounts. This should give you all the information you need, along with an up-to-date performance chart, to make an informed decision.

The KID looks like a reasonable starting point for a less experienced investor as long as they don’t put too much reliance on the likely performance scenarios. They could then move on to the factsheet to get the rest of their information.