Investment Trusts or Unit Trusts

moneylover

I too think this has been an excellent thread and its very slowly helping me get to grips with Investment Trusts as I have avoided them before. Many thanks everyone for some interesting reading.

I have been looking at the fund recommendations to follow in yesterdays Times. They are a mix of UTs and ITs. The ITs are Edinburgh Investment Trust, British Empire Securities and JP Morgan Emerging Markets.

Am still not quite clear what charges I would pay with HL if I bought through them? Say £1000 in each trust just for example. It has been mentioned that there can be big differences between bid and sell prices with some trusts. Are these trusts affected like this or are they large liquid funds where there is usually only a small difference? Is it on a specialist site like Trustnet that has been mentioned that the movement in prices can be seen? Or are ITs found in the FTSE 100, 250 etc? Sorry to still be a bit puzzled. Am also unsure what costs are involved when selling or transferring to another IT.
At the moment I do not have a HL account but am going to set one up when I figure what is the correct account to set up.

cheerfulcat

jimjames wrote: »

Investment trusts are shares not funds so will be charged the 0.5% fee if bought in the HL Vantage account.

No, not in the fund and share account. Click on Key Features on the linked page, here. That's without an ISA wrapper of course.

Moneylover, if you want the ISA wrapper then HL is a bit expensive for anything that doesn't pay them trail commission. Halifax has a cheap and cheerful self-select ISA, as does Alliance Trust ( though they can have some peculiar charges ). Selftrade is another possible option.

barak

cheerfulcat wrote: »

No, not in the fund and share account. Click on Key Features on the linked page, here.....

Your link includes "0.5% stamp duty will apply to any purchases of UK listed shares." I don't think you can escape paying stamp duty on share purchases - unless HL were to pay it for you.:undecided This is from HL's Terms & Conditions.

Government share dealing charges
• Stamp duty 0.5% on all UK share purchases
• Stamp duty reserve tax 0.5% (rounded up to the
nearest £5) on residual share purchases
• PTM (Panel of Takeovers & Mergers)£1 on all UK
share deals over £10,000

Totton

Some good information in this thread but equally some lopsided stuff about IFA's and incorrect info re: HL fees. As ever, let the buyer beware but whilst I like IT's there are some that do not do as well as respective OEICS's and some that do better. It is often the timeframe that determines which is best choice but folk get hung up on charges whilst losing sight that the aim is to make a profit ;-) I prefer lower risk, well managed investments over low charges any day. :-)

jamesd

barney_100, monelylover, if you're buying ITs it's probably best not to use HL's ISA. There are others that are more aimed at share dealing and more suitable for IT use. HL is really oriented towards unit trusts, OEICs and SICAVs. It's worth a look at the Alliance trust system, though not the investment trust.

Unit trusts and investment trusts have a bid-offer spread. With UTs it's mainly due to the initial commission and HL rebates most or all of that, eliminating most of the spread that's quoted so you buy at close to the bid price, not the offer price. There are relatively small other spreads depending on whether the fund manager has to buy shares to satisfy an order or whether existing shares from a selling customer can be used to meet part of the demand.

With ITs it's the usual market spreads that you get for any share, depending on volume of trades and such.

Costs for IT dealing are whatever the per-trade cost is and you'll also lose out on margin when buying or selling as well as the stamp duty on purchases. You'll also gain or lose by any change to the difference between net asset value and the trading price, something that doesn't happen with UT, OEIC or SICAV dealing because they are more transparently owning and buying and selling the underlying holdings instead of having their own value independent of the value of the assets they hold.

jimjames wrote: »

EDIT - the 0.5% fee only applies in the Vantage ISA account

Here's a summary for each account type:

ISA: 0.5% annual charge if no commission paid, capped at £200 a year, pays loyalty bonus commission rebate. No charge for unit trust/OEIC/SICAV deals.
SIPP: 0.5% annual charge if no commission paid, capped at £200 a year, doesn't pay loyalty bonus commission rebate. No charge for unit trust/OEIC/SICAV deals.
Fund and share account: No 0.5% annual charge, pays loyalty bonus commission rebate. No charge for unit trust/OEIC/SICAV deals.

And for all providers, HL or not: dealing fees for share, including IT, transactions and stamp duty to pay at purchase if applicable, not applicable for unit trusts, OEICs or SICAVs. Systems that are aimed at share dealing will probably also charge a per-transaction fee for unit trust deals.

Totton wrote: »

incorrect info re: HL fees

jimjames corrected that post, so what's here now looks right.

Totton wrote: »

It is often the timeframe that determines which is best choice but folk get hung up on charges whilst losing sight that the aim is to make a profit ;-)

Right. Buying ITs when they aren't in demand and have nice discounts can be interesting, as can be buying them when they can use their leverage ability well.

cheerfulcat

barak wrote: »

Your link includes "0.5% stamp duty will apply to any purchases of UK listed shares." I don't think you can escape paying stamp duty on share purchases - unless HL were to pay it for you.:undecided This is from HL's Terms & Conditions.

I posted before jimjames' correction of his post!

jimjames

cheerfulcat wrote: »

I posted before jimjames' correction of his post!

Yep, sorry for the confusion.

To clarify within the HL ISA you will be paying 0.5% stamp duty on the purchase and then a 0.5% annual management fee to cover the ISA administration/tax rebate etc. Outside the ISA you will still have to pay 0.5% stamp duty but not the 0.5% annual fee.

koru

The other big attraction of many of the well-known ITs is that they have increased their dividends every year for decades. City of London IT has managed this for 42 years on the trot. If you are investing for income, it is very reassuring to know that the income is very unlikely to dip. If they have managed this through the oil shocks and inflation of the 70s and several recessions and crashes since then, that is pretty impressive.

Rollinghome

jimjames wrote: »

I find it very strange that IFAs are not permitted to recommend what could be one of the most suitable investments for long term investors - but hey ho!

I think you are being slightly mislead Jim. What Dunstonh should have said was that while he may not be authorised to advise on ITs, plenty of IFAs do understand them and get authorised. Just go to unbiased.co.uk and tick the box for Investment Trust advice and you'll find those able to give more rounded financial advice in your area.

The FT recently referred to a survey of IFAs where 30% admitted that the reason they didn't have authorisation to advise on ITs was "Because there's nothing in it for me", i.e no commission.

It seems to makes sense to avoid IFAs who are more interested in their commission that in providing the best investments for their clients.

dunstonh

I think you are being slightly mislead Jim. What Dunstonh should have said was that while he may not be authorised to advise on ITs, plenty of IFAs do understand them and get authorised. Just go to unbiased.co.uk and tick the box for Investment Trust advice and you'll find those able to give more rounded financial advice in your area.

Mainly those with an in-house stockbroker or only stick to packaged ITs or a limited pre-authorised selection or have they have the required authorisations. When the FSA recently changed the control functions for advisers it also opened up the ability to allow further permissions. In addition to the current packaged products, “retail investment products” will include unregulated collective investment schemes, all investments in investment trusts (not just those in investment trust savings schemes) and structured investment products. It will also include other investments which offer exposure to underlying financial assets, including exchange traded funds (ETFs).

So, permissions will be changing as we move closer to RDR. The FSA itself has admitted that many firms are not sure on what is permitted and what isnt as the FSA didnt publish a list. Take ETFs for example, some are permitted but some are not. So, without a list or easy way to identify what is or isnt allowed, compliance firms will usually err on the side of caution and not allow authorisation in that area.

Its not just as simple as permissions though. If you look at risk profiles of ITs compared to a comparable UT, you tend to find the IT is higher up the risk scale. That in itself can cause issues with inexperienced investors getting advice. Features that work to the advantage of closed-ended funds in rising markets have have the reverse effect in volatile markets. A prolonged period of poor equity returns accompanied by a significant increase in investment discount to net asset value can exacerbate negative portfolio returns. Investment trusts are eclipsed by open-ended investment schemes on the one hand and by hedge funds on the other. OEICs offer retail investors more transparency, additional controls and are without the uncertainty of a varying discount to net asset value. Investment trusts position as high risk-reward vehicles for institutional or sophisticated investors has been increasingly replaced by hedge funds that have far greater investment freedom and little of the regulatory burden imposed on onshore closed-ended funds.

The FT recently referred to a survey of IFAs where 30% admitted that the reason they didn't have authorisation to advise on ITs was "Because there's nothing in it for me", i.e no commission.

Authorisation and remuneration are not linked. You are either authorised or you are not.