Investment trusts versus Mutual funds

Voyager2002 · 29 August 2012 at 1:40PM

I always thought that one great advantage of ITs was that management costs were lower (partly because they don't have to worry about attracting new investors and so need spend less on advertising). However, I have just been looking at a few and seen management fees around the 1.5 per cent mark, which is similar to the fees charged by Funds.

Am I missing something? Are there other reasons for choosing the IT vehicle, given that I want active management of a reasonably diverse equity portfolio?

LGDT_2 · 29 August 2012 at 2:01PM

Many fund managers have gradually ramped up their management charges over the years so the differential between investment trusts and unit trusts has become a bit blurry.

However you should be aware that an investment trust (unlike a unit trust) is just a quoted share so there's no need to buy them directly from the fund manager. You can set up a share dealing account and buy them just as you would any share.

I keep all my investments under one roof with Hargreaves Lansdown's Vantage service and all of the investment trust shares I hold within/without ISAs were purchased in this way.

mr_fishbulb · 29 August 2012 at 2:09PM

You also have the Bid/Offer spread which is essentially another fee to consider.

dunstonh · 29 August 2012 at 2:26PM

I always thought that one great advantage of ITs was that management costs were lower (partly because they don't have to worry about attracting new investors and so need spend less on advertising). However, I have just been looking at a few and seen management fees around the 1.5 per cent mark, which is similar to the fees charged by Funds.

Actually, on a like for like basis (i.e. comparing unbundled UT prices with ITs which are unbundled pricing as default) then many UTs come in cheaper but on the whole it is comparable.

Are there other reasons for choosing the IT vehicle, given that I want active management of a reasonably diverse equity portfolio?

ITs are typically a notch higher up the risk scale compared to their UT equivalent. Gearing being a key reason along with supply/demand pricing. Whilst both of those increase the risk, they also increase the potential for gains (and losses).

grey_gym_sock · 29 August 2012 at 5:31PM

dunstonh wrote: »

Actually, on a like for like basis (i.e. comparing unbundled UT prices with ITs which are unbundled pricing as default) then many UTs come in cheaper but on the whole it is comparable

however, if you don't want to have (or pay for) financial advice or a platform, most UTs have been expensive, because they've only been available to you at bundled prices. so it's true that a lot of UTs have been expensive for DIY investors. but that is because of bundling, rather than the underlying UTs, and should be changed by RDR and the platform review.

Investment trusts versus Mutual funds

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