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  • FIRST POST
    • Audaxer
    • By Audaxer 7th Jun 17, 8:05 PM
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    Audaxer
    Investment Trusts not covered by the FSCS?
    • #1
    • 7th Jun 17, 8:05 PM
    Investment Trusts not covered by the FSCS? 7th Jun 17 at 8:05 PM
    I have just come across this page
    https://www.rplan.co.uk/pages/help/investor-protection
    which says that Investment Trusts are not covered by the FSCS. I had assumed they were covered up to £50k, the same as fund houses are.

    Please can you reassure me - is there any chance of an Investment Trust going into liquidation and losing your investment?
Page 1
    • dunstonh
    • By dunstonh 7th Jun 17, 8:24 PM
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    dunstonh
    • #2
    • 7th Jun 17, 8:24 PM
    • #2
    • 7th Jun 17, 8:24 PM
    which says that Investment Trusts are not covered by the FSCS.
    Correct. They are not a retail investment product but a direct investment. (Caveat - packaged ITs are a retail product but not many of those around).

    Please can you reassure me - is there any chance of an Investment Trust going into liquidation and losing your investment?
    You have a theoretical 100% loss of capital with no FSCS protection. Highly unlikely by theoretically possible.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • antrobus
    • By antrobus 7th Jun 17, 8:43 PM
    • 15,033 Posts
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    antrobus
    • #3
    • 7th Jun 17, 8:43 PM
    • #3
    • 7th Jun 17, 8:43 PM
    I have just come across this page
    https://www.rplan.co.uk/pages/help/investor-protection
    which says that Investment Trusts are not covered by the FSCS. I had assumed they were covered up to £50k, the same as fund houses are. ...
    Originally posted by Audaxer
    An investment trust is a limited company. There is no FSCS protection for investments in limited companies.

    If however, a FCA firm gives you advice regarding the purchase of investment trusts, you can complain if they give you bad advice.

    ...Please can you reassure me - is there any chance of an Investment Trust going into liquidation and losing your investment?
    Originally posted by Audaxer
    There is always a chance that an investment trust could buy a whole bunch of rubbish which turns out to be worthless, and you lose your investment. But then there's always a chance that any unit trust, OEIC, or whatever could buy a whole bunch of rubbish which turns out to be worthless, and you lose your investment. FSCS doesn't protect consumers from bad investments.

    The only issue with investment trusts is that they can gear up, as in borrow money to invest, and so if the they do so and the investments fall in value they can become insolvent. I think it was back in 2002 (?) that we had the split capital crisis. Some ITs did indeed go pop at that time I believe.
    • AnotherJoe
    • By AnotherJoe 7th Jun 17, 9:29 PM
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    AnotherJoe
    • #4
    • 7th Jun 17, 9:29 PM
    • #4
    • 7th Jun 17, 9:29 PM
    I think your concern is misplaced, you have to look at the most likely things to happen.

    The FSCS guarantee protects you against fraud (essentially). You can still lose money in any bad fund or any good fund in a bad area.

    As said though it doesn't protect against poor investment performance . The odds that you will lose money due to a poorly performing fund or IT are most likely literally many thousands of times higher than a fraud causing a fund to collapse, where you would be covered, or an IT, where you wouldn't.

    You should concentrate on the fund or IT investment strategy rather than letting highly unlikely events drive your strategy.
    • Audaxer
    • By Audaxer 7th Jun 17, 10:51 PM
    • 313 Posts
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    Audaxer
    • #5
    • 7th Jun 17, 10:51 PM
    • #5
    • 7th Jun 17, 10:51 PM
    You should concentrate on the fund or IT investment strategy rather than letting highly unlikely events drive your strategy.
    Originally posted by AnotherJoe
    Fair enough, I was just asking as I had only found out. I know that a lot of investors on here use ITs so I assumed the risk was minimal. I am aware you are not covered for poor investment performance.

    I now know that in the unlikely event of a major fraud in a fund you invested in, you could claim back up to £50k under the FSCS, but in an IT you couldn't.
    • JohnRo
    • By JohnRo 7th Jun 17, 11:02 PM
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    JohnRo
    • #6
    • 7th Jun 17, 11:02 PM
    • #6
    • 7th Jun 17, 11:02 PM
    ..so I assumed the risk was minimal.
    Originally posted by Audaxer
    I might well be wrong but I think you'll probably find most folks using them accept the risk versus funds is greater. It's the structural advantages that make them attractive.

    If you accept the added risks and possible amplified volatility then they have distinct advantages longer term.
    'We can't solve problems by using the same kind of thinking we used when we created them.' ― Albert Einstein
    'Facts do not cease to exist because they are ignored.' ― Aldous Huxley
    • AnotherJoe
    • By AnotherJoe 8th Jun 17, 7:07 AM
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    AnotherJoe
    • #7
    • 8th Jun 17, 7:07 AM
    • #7
    • 8th Jun 17, 7:07 AM
    Fair enough, I was just asking as I had only found out. I know that a lot of investors on here use ITs so I assumed the risk was minimal. I am aware you are not covered for poor investment performance.

    I now know that in the unlikely event of a major fraud in a fund you invested in, you could claim back up to £50k under the FSCS, but in an IT you couldn't.
    Originally posted by Audaxer
    I agree, the risk is minimal. Though after watching the TV programme about Madoff the other day, it does give pause
    • Malthusian
    • By Malthusian 8th Jun 17, 9:33 AM
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    Malthusian
    • #8
    • 8th Jun 17, 9:33 AM
    • #8
    • 8th Jun 17, 9:33 AM
    I agree, the risk is minimal. Though after watching the TV programme about Madoff the other day, it does give pause
    Originally posted by AnotherJoe
    As long as your investment trusts aren't run by an absolute genius who somehow manages double-digit returns during stockmarket crashes you are probably safe.
    • bigadaj
    • By bigadaj 8th Jun 17, 2:17 PM
    • 9,604 Posts
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    bigadaj
    • #9
    • 8th Jun 17, 2:17 PM
    • #9
    • 8th Jun 17, 2:17 PM
    I agree, the risk is minimal. Though after watching the TV programme about Madoff the other day, it does give pause
    Originally posted by AnotherJoe
    though of course if you use a fund manager/ adviser then nothing can go wrong, someone like Nicola Horlick for example, oh no, hang on....
    • Audaxer
    • By Audaxer 8th Jun 17, 9:00 PM
    • 313 Posts
    • 104 Thanks
    Audaxer
    I might well be wrong but I think you'll probably find most folks using them accept the risk versus funds is greater. It's the structural advantages that make them attractive.

    If you accept the added risks and possible amplified volatility then they have distinct advantages longer term.
    Originally posted by JohnRo
    What are the distinct advantages long term? Is it the fact that they can hold back income in good times to continue with growing dividends in bad times, or are they other advantages?
    • melbury
    • By melbury 8th Jun 17, 9:22 PM
    • 9,622 Posts
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    melbury
    This has never crossed my mind.

    Surely investment trusts are the same as buying shares in any other company, so there is no reason why they would come under the FSCS any more than if you had bought shares in Tesco.
    Stopped smoking 27/12/2007, but could start again at any time

    • jimjames
    • By jimjames 8th Jun 17, 9:43 PM
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    jimjames
    This has never crossed my mind.

    Surely investment trusts are the same as buying shares in any other company, so there is no reason why they would come under the FSCS any more than if you had bought shares in Tesco.
    Originally posted by melbury
    Exactly. I was a bit confused by the question but I guess it's understandable if you're not clear on the differences
    Remember the saying: if it looks too good to be true it almost certainly is.
    • bowlhead99
    • By bowlhead99 8th Jun 17, 9:43 PM
    • 6,601 Posts
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    bowlhead99
    What are the distinct advantages long term? Is it the fact that they can hold back income in good times to continue with growing dividends in bad times, or are they other advantages?
    Originally posted by Audaxer
    The flexibility to not have to pay out all their income is one positive. Ability to borrow from banks or other investors to provide gearing on investment returns can be another.

    The major one is that a closed ended fund is not compelled to sell off its assets, pay out cash and get smaller, just because an investor no longer wants to invest. If an investor in an investment trust no longer wants to be an investor, the investor simply sells their shares to someone else via the stock exchange at whatever price the other person is willing to pay. The investment trust's portfolio continues intact.

    This means that the trust can invest in interesting or illiquid stocks without having to dump them at fire-sale prices to meet redemption requests (which could cause a loss for all holders despite the assets being fine if they could have been held for the longer term), and likewise they don't have to hold cash on hand (a drag on performance) to be able to meet redemption requests.
    • Audaxer
    • By Audaxer 8th Jun 17, 11:58 PM
    • 313 Posts
    • 104 Thanks
    Audaxer
    This has never crossed my mind.

    Surely investment trusts are the same as buying shares in any other company, so there is no reason why they would come under the FSCS any more than if you had bought shares in Tesco.
    Originally posted by melbury
    Yes, but that is one of the reasons I wouldn't invest in individual shares. My consideration was ITs or funds, so I was just trying to establish if there was a risk of an Investment Trust going bust, as I was considering investing fairly large amounts in various ITs.
    • Malthusian
    • By Malthusian 9th Jun 17, 9:33 AM
    • 2,596 Posts
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    Malthusian
    though of course if you use a fund manager/ adviser then nothing can go wrong, someone like Nicola Horlick for example, oh no, hang on....
    Originally posted by bigadaj
    The idea was to appeal to investors online for funding to get the business, which aims to make Hollywood movies, off the ground. She used a well-known website, Seedrs Capital, where tennis champion Andy Murray sits on the advisory board.
    Who told you that if you invest in Hollywood films via crowdfunding nothing can go wrong?
    • bigadaj
    • By bigadaj 9th Jun 17, 9:38 AM
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    bigadaj
    Who told you that if you invest in Hollywood films via crowdfunding nothing can go wrong?
    Originally posted by Malthusian
    Where's the second quite from?
    • parcival
    • By parcival 9th Jun 17, 11:36 AM
    • 427 Posts
    • 254 Thanks
    parcival
    I seem to remember major problems about 15 years ago with Zero funds which I think were Investment Trusts. Many of these lost a lot of money and I recall the Financial Ombudsman did a major investigation which resulted in compensation being paid...
    • jimjames
    • By jimjames 9th Jun 17, 12:52 PM
    • 11,933 Posts
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    jimjames
    I seem to remember major problems about 15 years ago with Zero funds which I think were Investment Trusts. Many of these lost a lot of money and I recall the Financial Ombudsman did a major investigation which resulted in compensation being paid...
    Originally posted by parcival
    They were actually split capital investment trusts which had geared shares and zero dividend preference shares. When the market crashed the gearing left some shares worthless.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • oldwally
    • By oldwally 10th Jun 17, 7:59 PM
    • 61 Posts
    • 19 Thanks
    oldwally
    They were actually split capital investment trusts which had geared shares and zero dividend preference shares. When the market crashed the gearing left some shares worthless.
    Originally posted by jimjames
    Aberdeen had quiet a few of them..........I had one
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