Investment trusts for children

Speaross

Hi all,
On behalf of my two sons aged 5 & 2 I have been tasked with looking at the best place to invest lumps sums for them over the long term. I’m thinking of investing in an investment trust, specifically the Witan Jump savings plan - the reasons being very low charges and a diversified portfolio that is globally based. However before I go ahead I wonder if anyone could enlighten me on the following questions (please excuse my naivety)
1. What is the difference between buying an investment trust direct from the supplier eg Witan, rather than buying shares in Witan from, say the Share Centre. At what point does a simple share holding equate to an investment trust holding.
2. Following on from above, can an IT be purchased more cheaply from a discount broker. I’ve heard that no commission is paid by IT’s – does this mean that there is no way to buy them more cheaply than directly from the IT company themselves.
3. Why are there seemingly so few IT’s marketed for children and is there any good reason to go for an IT from Baillie Gifford, Aberdeen or F&C as opposed to Witan.
4. Are there any league tables published for these that clearly state performance over 1, 3, 5, 10 year periods – I can’t find any that compare ITs for children directly with each other.
5. If we set up the IT’s in bare trusts is there any way we can keep control over the money until sometime after their 18 birthdays eg until say, 21 or 25?
I should also add that each son already has a CTF invested with F&C FTSE All Share Tracker Fund and building society accounts currently paying peanuts%
Any enlightenment on the above would be greatly appreciated.
Speaross

Gymgenius

I can't help with you're questions, but I want to watch this thread.

Rollinghome

Investment Trusts are companies with boards of directors. When you invest in an Investment Trust, by buying shares, you become a shareholder just as if you had bought shares in M&S or Cadburys. Some like Alliance and 3i are very big companies.

They are "closed end" so you can only buy shares if someone else is willing to sell, just like any other shares. Unlike UTs you aren't buying from the managers.

So whether you buy via Witan, F&C, Alliance, 3i or whoever, you will pay the market price. The only thing that may be different is the stockbroking fee. Buy wherever costs are lowest and the best service is provided.

There are performance tables for ITs on http://www.trustnet.co.uk and on the Association of Investment Companies website http://www.theaic.co.uk/ together with a lot of information such as TERs etc. Their shareprice can be followed in Google Finance etc.

The bigger ITs have special schemes to make their shares more attractive so presumably more would have arrangements fo children if they thought it was cost effective.

cloud_dog

Ok, I'll have a go......

Speaross wrote: »

What is the difference between buying an investment trust direct from the supplier eg Witan, rather than buying shares in Witan from, say the Share Centre. At what point does a simple share holding equate to an investment trust holding.

From the looks of the Witan site they charge £10 + VAT for the initial investment and 1% AMC (min £10) but they do not charge for any subsequent trading, so.......... It depends if you are goinmg to trade frequently or not?

Speaross wrote: »

Following on from above, can an IT be purchased more cheaply from a discount broker. I’ve heard that no commission is paid by IT’s – does this mean that there is no way to buy them more cheaply than directly from the IT company themselves

Not really, I.T. are traded just like stocks and shares.

Speaross wrote: »

Why are there seemingly so few IT’s marketed for children and is there any good reason to go for an IT from Baillie Gifford, Aberdeen or F&C as opposed to Witan

Not sure about the child specific aspect but I.T.s are an old method of investing and because they don't pay commision not a 'popular' (I used to love investing in I.T.s).

Speaross wrote: »

Are there any league tables published for these that clearly state performance over 1, 3, 5, 10 year periods – I can’t find any that compare ITs for children directly with each other.

No you are unlikely to find league tables for child I.Ts, best thing to do is to find the funds you are interested in and then comparte them using https://www.trustnet.com or https://www.morningstar.co.uk, either way the child element isn't relevant to performance.

Speaross wrote: »

If we set up the IT’s in bare trusts is there any way we can keep control over the money until sometime after their 18 birthdays eg until say, 21 or 25?

Someone more expereinced will need to answer this definitively but as far as I am aware no, not in a bare trust;would need to use a discretionary trust for things longer than 18th birthday(???)

Rollinghome

cloud_dog wrote: »

because they don't pay commision not a 'popular'

So that no one misunderstands what you meant, whereas UTs pay upfront plus annual 'trail commission' to advisers, they don't get any commission if they recommend ITs. (Except possibly for 'new issues' which are always best avoided anyway.)

It's not really a good idea to buy any shares, including ITs, based on the buying charges alone. It's how you expect them to perform that counts. Many of those buying schemes don't allow you to buy instantly so you don't know how much you are paying and will usually bulk orders so you may not get the best price. If you are buying such a small amount that the buying costs are significant they may be worthwhile but for larger sums a low cost internet stockbroker will generally be the best bet.

purch

1. If you buy direct from the Investment Trust company you normally pay a trading commission plus stamp duty (often 1% trading commission)...so you may find it cheaper to use a stock broker depending on the size. The saving schemes aimed at children usually don't have dealing costs associated with regular payments.

2. as above

3. Witan, Baille Gifford and F&C all have schemes aimed at Investing for Children. Within those schemes you can hold shares in any of the actual IT's each company run.

4. Trustnet or other similar sites have comparisons and league tables. Note there are no IT's specifically for children. Just savings schemes aimed a children where you can hold shares in IT's

5. Best speak to a solicitor

Generalist Investment Trusts can be a good vehicle for Investing over a long term. They normally have lower AMC's than other types of Funds and the pricing is transparant and easy to understand. Performance over the long term for many IT's has been good, although over shorter periods they sometimes lag UT's, especially in volatile and uncertain markets like we have had over the past couple of years.

david78

All i can add to these replies is:

(1) They are an excellent way of saving monthly for the long term 20+ years
(2) Ideal for children with a lifetime ahead.
(3) Buy using a "savings scheme" set up by the manager of the investment trust (or sometimes the investment trust is independent and has a scheme). These have lower dealing charges (or sometimes no charge) compared to general brokers like the share centre.
(4) You cans set up a "bare trust". No need for a solicitor, its just a form you complete with the application stating the money is intended for your children.

Speaross

Thanks for all the replies guys, most helpful.

Cloud Dog when you say
‘I used to love investing in I.T.s’
what has changed to make you not love investing in them anymore?


Rollinghome re;

‘It's not really a good idea to buy any shares, including ITs, based on the buying charges alone. It's how you expect them to perform that counts.’

I get your argument here, but given that no-one has a crystal ball and all managed funds set out to make money, it seems to me that if you can invest in a product that charges say 1% per annum rather than say 5% per annum, and with all else being equal (as it appears that ITs are similar products to UTs in many respects), it seems like a no-brainer to invest in the IT. Or am I missing something?

Speaross

Mr_Mumble

A little verification on no.5: cloud_dog is right. For bare trusts the answer is no, you can not stop the named beneficiary from using the assets how they wish once they reach 18. The beneficiary has absolute entitlement and there is no trustee/nominee discretion. Many parents will simply fail to mention the existence of a bare trust to try and get around this problem. However, the child should have details of the investment addressed to them so they could easily find out about the nest egg.

david78

You don't have to use a bare trust. You can just designate the account as for your child. Then if you want you can change your mind, or use the account as you wish at a later date. e.g. help with your child's education, or whatever.

Rollinghome

Speaross wrote: »

Rollinghome re;

‘It's not really a good idea to buy any shares, including ITs, based on the buying charges alone. It's how you expect them to perform that counts.’

I get your argument here, but given that no-one has a crystal ball and all managed funds set out to make money, it seems to me that if you can invest in a product that charges say 1% per annum rather than say 5% per annum, and with all else being equal (as it appears that ITs are similar products to UTs in many respects), it seems like a no-brainer to invest in the IT. Or am I missing something?

Speaross

Yes, I'd generally agree with that, which is why I'm mainly invested directly in shares and ITs. High management charges are the reason that the majority of managed UTs even underperform automated tracker funds.

I was really referring to the stockbroking/buying costs. I wouldn't invest with a company just because it offered a generous perk or share-buying scheme. Obviously all costs do have to be taken into account. Sorry, I don't know anything about the schemes for children and have never used any of the IT purchasing schemes with one reason being that those I looked at took away a major advantage of ITs over UTs - the ability to buy or sell instantly at any time at a known price.

On management charges I wouldn't, and don't, object to higher management charges when convinced they're rewarded with higher returns. I suspect very few are and are a big drag on performance. I imagine those who paid Nicola Horlick's generous fees to have her put their money with Mr Madoff would have thoughts on that too.

If, as many predict, the returns on investments are very slim over the next few years then you'd be particularly right to scrutinise charges. Paying 1.6% (with 0.5% of that usually going straight to the adviser in trail commission each year) might have been palatable when returns were well above inflation. If returns are low relative to inflation then paying so much as management charges and commission that it wipes out any gain will be even less less easy to swallow.

It isn't just due to low costs alone that ITs have the potential to outperform UTs of course.