When a fund manager closes your fund...

fronty

So I've been invested in BNY Mellon Equity Income Booster for over 10 years now, over that period of time it has paid out many thousands in income and I've been quite happy with the yield, but the performance of the units inside the fund itself has not been great, I've suffered about 30% capital depreciation, probably more if you factor in inflation, but to be honest it didn't bother me because it was a nice monthly income, all tax free inside my ISA.

So when I got the email from HL saying the fund was closing I was rather annoyed. This is not the first time this has happened, and I can't help thinking there should be some regulation around this, because I am effectively having to crystallise a 30% loss. If I was able to stay re-invested then this loss might not be so bad if markets eventually recover. Of course it could end up being worse, but the point is it should be MY choice whether I stay invested or not. By closing the fund they are removing that choice and now I am forced to sell up and find another fund because the one they have recommended has a lower yield and only pays out quarterly not monthly.

It hurts to crystallise a loss and I can't tell you how annoyed I am right now.

eskbanker

fronty said:

the point is it should be MY choice whether I stay invested or not

Are you expecting to have the right to veto the decision and force them to keep it going?

boingy

You have no choice but the good news is that if you cash out and invest the proceeds in a similar fund you'll likely get a similar growth (or not!) that the current fund would have achieved, give or take a few dealing costs.

Years ago I was really peeved when one of my paper shareholdings was taken private so I was forced to sell at the price they set. It was a small loss but I still scowl at the memory. 

ColdIron

Well, it's a small fund at 63 million and if it hasn't reached critical mass by now it probably never will, But it appears it is merging with another UK Equity Income fund

• Why the funds are merging
• Having undertaken a strategic review of its equity income fund range following the resignation of the investment manager for the merging fund, BNY Mellon concluded that, by bringing the two funds together, the overall fixed costs to investors will reduce due to the potential efficiencies obtained from the management of a larger combined fund.
• With the Receiving fund consistently outperforming the Merging fund, BNY Mellon believes that the proposed merger would be beneficial to shareholders.

I am forced to sell up and find another fund because the one they have recommended has a lower yield and only pays out quarterly not monthly.

Don't forget that yield is just an expression of distribution/value. If the value of the fund decreases then the yield goes up as a percentage. And payment frequency is hardly an insurmountable obstacle

High income UK Equity funds are not uncommon and if the bloke that owns the ball wants to take it home there is not a lot that you can do

Malthusian

fronty said:

So when I got the email from HL saying the fund was closing I was rather annoyed. This is not the first time this has happened, and I can't help thinking there should be some regulation around this, because I am effectively having to crystallise a 30% loss. 

No you aren't. It is only crystallised if you cash it in instead of reinvesting.
From the name of the fund I am guessing this is one of those funds that sells call options to boost the fund's yield, effectively sacrificing capital growth when markets go up and converting it into income. When markets go down, these funds experience higher capital losses than "normal" equity income funds, because they haven't had as much capital growth to buffer against the downside.
If you really still want a fund like this, there are others available you could switch into. They would likely perform in a similar way to the BNY fund, so if BNY was going to go up if it was still around, the new fund would as well. However the likelihood is that the performance of the fund will continue to be disappointing. If the markets go up to 30% it won't put you back above water, because in an "income maximiser" fund, some of that capital appreciation will be sacrificed to generate higher yield. 

By closing the fund they are removing that choice and now I am forced to sell up and find another fund because the one they have recommended has a lower yield and only pays out quarterly not monthly.

Why not just take a regular monthly withdrawal from the ISA? Most of the "income" you have received has been effectively coming out of your capital anyway. 

You would achieve the same end, and probably lose less capital, by taking a regular monthly withdrawal that was slightly higher than the natural income. Just like with the Income Booster investment, you would be sacrificing some capital in order to boost your income, but the underlying investment would be less crap (potentially).