Questions regarding Investment Trusts

moneytroll

It took me a while until I became aware of the (possible) benefits of Investments Trusts. With so much advertising of UTs/OEICs it's not too difficult to completely overlook them. Also you only read about managers from UTs/OEICs – some seem to be enjoying an almost celebrity status! (but that’s another topic).
Could somebody help me understand ITs a little better please? It's hard to find a lot of info about them as they are not advertised/pushed as much as UTs//OEICs and many things seem a little awkward. More specifically, I would like to know:

1. Their charging structure/flexibility:
If you hold a diversified portfolio of different funds (within ISA) and need switching between them from time to time (but not too often), is it better/cheaper/easier to do it through Investment Trusts rather then UTs/OEICs? Or are they more convenient for long-term buy and hold investors?
What is a good broker to buy ITs from?

I see that it makes sense to buy into them at a large discount, but at the moment, most ITs don’t offer one (eg, if I understood correctly, the f&c investment trust has a discount of -12%. Does this mean that it would work to my disadvantage to buy into it while it has a negative discount? Sorry if the questions seem dull.)
Does this then mean that if at one point I really needed to change to another IT, I will be in for a double-whammy, if the IT I am switching FROM offers a positive discount, and the one I am switching TO offers a negative discount? (did I get it wrong with the discount?)
It seems that with IT's charging structure, you have to consider not only how the sector is doing where the fund is invested, but also the timing for the discount to be right.

2. Is the quality/standard of the managers in ITs comparable to the ones from UTs/OEICs? And can you access the same huge variety of different funds to get focused exposure to certain sectors/countries similarly?

3. Which portfolio tools are good to follow/analyze ITs? (their past performance, what they are made of etc)

If somebody has long-term experience with ITs or knows the answers, I would be very grateful for some help or pointers where to read up on them in more detail.

ReportInvestor

moneytroll wrote:

if I understood correctly, the f&c investment trust has a discount of -12%.

F&C has a discount to NAV of 8.8%.

That's a "positive" discount in the sense that your 91.2p invested buys £1 of assets that pay you dividends from the £1, not the 91.2p.

If F&C invest badly - or the markets crash - that discound to NAV could widen again, having narrowed - to investors' advantage - over the last few years.

moneytroll

Many thans, RI. Where can I buy ITs from? What are the charges? (are they based on an annual basis or charged per trade?)

ReportInvestor

Do your own research on Foreign & Colonial IT - F&C link

cheerfulcat

Hi, moneytroll,

They are funds but they are traded like shares, so you buy them on the open market and thus you can buy through any broker. There's more about ITs on the AITC site and at Incademy. The Motley Fool has a dedicated IT/UT board. Look particularly for posts by forrado, who knows a lot about ITs.

The managers are frequently also UT managers, so no difference in quality. In fact some UT funds are also available as ITs. However IT managers are allowed to use gearing ( borrowing money ) so investment returns can be better than those of similar UTs, though of course drops in share prices will be magnified as much as rises.

To my mind one of the main advantage of ITs over UTs is that they are priced continuously throughout the day, rather than once a day.

HTH

Cheerfulcat

ReportInvestor

cheerfulcat wrote:

To my mind one of the main advantage of ITs over UTs is that they are priced continuously throughout the day, rather than once a day.

In a stockmarket crash, this could prove important.

moneytroll

Great stuff, CC, many thanks (especially Inacademy is a great site).
Though from what I worked out so far, it only makes sense to choose IT over UT/OEIC for the same funds if you can get in at a discount of >20% and I haven't seen a single IT that offers such a high discount at the moment.

dunstonh

Though from what I worked out so far, it only makes sense to choose IT over UT/OEIC for the same funds if you can get in at a discount of >20% and I haven't seen a single IT that offers such a high discount at the moment.

Be careful on assuming like for like. Investment Trusts can borrow money. OEICs cannot. This does offer increased potential for growth but it comes with increased risk. Therefore "similar" OEICs and ITs are not always in the same risk area.

Chrismaths

Also, check how the discount is quoted. In the roaring 80's and 90's, a lot of IT took on a lot of very expensive debt (like 13% fixed for 20 years!), and trustnet quote the discount on the basis of how much debt they have, rather than the fair market value of that debt. So just be careful.

moneytroll

thanks - so where do i actually get "proper" discount quotes for ITs? So far I could only access/look at them more closely through trustnet..

Chrismaths

Once you find one you like, look at the RNS (regulatory news service) for the Investment trust, and look at the NAV statements. They should have a NAV quoted 'marked-to-market' - ie at the fair value of the debt. That only works if they issued bonds - they could equally have taken out bank debt on similar terms. I'm not aware of any central source that brings together this information (other than expensive professional systems) - but the published accounts of the investment trust will have the necessary info.

HTH.