Investment trust ISA v OEIC ISA

happyflea

In performance tables, on the whole investment trusts
have done much better than units trusts/OEICS over
the last year. Why is this? Is it because the stock
market has been rising so the demand for shares is
pushing up inv trust prices?

Do investment trusts always do better than unit trusts,
including in the long-term? I have only ever invested
in unit trusts but am wondering if I've been missing
something much better.

al_yrpal

There are less charges with Investment Trusts and over a long period this can show up in performance. Both funds and Trusts are made up from shares. There is much more choice in the number and scope of funds.

If you are seriously investing for the long term, consider Funds and Trusts, there are some great consistent Trusts out there.

Some people are IT bores - be warned!

ReportInvestor

The main reason for the recent outperformance of ITs is that discounts between the assets owned by the trusts & the value of the trusts' shares have narrowed as investors have become more optimistic about shares in general.

Those discounts can also widen if the market falls, as we saw in 2001-03.

At an average of 8.2% in June 2005 discounts were at their narrowest for 9 years.

A few trusts have tried to find ways of allaying investor worries of widening discounts.

Martin Currie Portfolio Trust, for example, allows investors to sell up with their full asset share on the fifth anniversary of their investment. The discount was 7.5% when I looked a couple of weeks back. So you are still potentially looking at a return of 1.5% pa + dividends even if the Trust's performance is flat.

cloud_dog

Happy

To (try) to answer your question regarding performance comparisons.......

.......as RI says over the recent past, generally, the discount / premium of IT NAV to share price has reduced, therby giving IT's a bit of additional growth. In addition IT's are pretty much run as a normal company and therefore can borrow money to invest (UT's / OIEC's cannot), this borrowing is known as gearing. In the good times / good investments, gearing helps the trusts increase their investment and therefore their return. The opposite is also true when times / investement decision are bad and gearing will increase the downside.

Also, also I assume your comparrisions would have only focussed on the top performers and therefore you need to bear in mind that good, consistent, IT 's attract demand on their shares from investors; thereby increasing the SP (supply / demand). This is also something to be aware of because this can lead to a top performing fund having its SP stand at a premium to the SP, i.e. the IT SP trades for more money than the SP is actually worth (NAV).

I like, IT's but consider them a slightly more risky investment vehicle than UT's / OIEC's (due to the above additional considerations). I know others, Deemy for example, would disagree with my risk assessment but thes are my thoughts.

Having said this they do tend to have lower charges BUT, as a principle I always give more focus / weight to the total returns from an investment when making investment decisions, i.e. if the fund charges more than aberage but growth consistently exceeds the average then I am happy to give them my money and let them have their cake. for me its about absolute returns.

cloud_dog

whiteflag_3

cloud_dog wrote:

Happy

To (try) to answer your question regarding performance comparisons.......

.......as RI says over the recent past, generally, the discount / premium of IT NAV to share price has reduced, therby giving IT's a bit of additional growth. In addition IT's are pretty much run as a normal company and therefore can borrow money to invest (UT's / OIEC's cannot), this borrowing is known as gearing. In the good times / good investments, gearing helps the trusts increase their investment and therefore their return. The opposite is also true when times / investement decision are bad and gearing will increase the downside.

Also, also I assume your comparrisions would have only focussed on the top performers and therefore you need to bear in mind that good, consistent, IT 's attract demand on their shares from investors; thereby increasing the SP (supply / demand). This is also something to be aware of because this can lead to a top performing fund having its SP stand at a premium to the SP, i.e. the IT SP trades for more money than the SP is actually worth (NAV).

I like, IT's but consider them a slightly more risky investment vehicle than UT's / OIEC's (due to the above additional considerations). I know others, Deemy for example, would disagree with my risk assessment but thes are my thoughts.

Having said this they do tend to have lower charges BUT, as a principle I always give more focus / weight to the total returns from an investment when making investment decisions, i.e. if the fund charges more than aberage but growth consistently exceeds the average then I am happy to give them my money and let them have their cake. for me its about absolute returns.

cloud_dog

This is a rely good reply, the issue of gearing is often overlooked.

What would be really good now is if Deemy could post his reasons for liking ITs while at the same time saying he would not touch uts/oeics with a barge pole.

happyflea

Thanks for your helpful replies everyone.