Investment Trusts or Unit Trusts

Totton

jimjames wrote: »

Remember that unless you are making more than £10k of gains per year then the real benefit of an ISA is only if you are a higher rate taxpayer.

Probably a little short-term thinking there, I'd suggest that if able to utilise the current ISA annual allowance then that may protect savings in the event of future tax changes.

Mickey

Rollinghome

dunstonh wrote: »

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.

Perhaps if for the benefit of your clients you learned a little more about ITs you would understand that that's a huge generalisation.

In reality, there are ITs with very low risk, including having discount stabilisation policies, and both UT/OEICs and ITs with very much higher risk in return for a potentially higher return. The choice is there for the investor but I don't understand why that should be a reason for advice not being available.

What is required is more IFAs with the competence to give comprehensive balanced advice and generally higher standards.

dunstonh wrote: »

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

I would assume those 30% of IFAs meant there was no financial advantage to them in being able to offer investments that don't pay them commission. That was the gist of the FT article.

The comments of Justin Modray www.candidmoney.com, himself a former IFA, seem to sum it up well:

The Financial Services Authority (FSA) allows independent financial advisers (IFAs) to recommend investment trusts provided they're authorised to do so. In practice this means an adviser ensuring they're qualified and competent to advise on investment trusts, as well as carrying out/buying research on the investment trust marketplace.

Unfortunately, most IFAs don't bother as it involves hassle and expense. Especially as investment trusts don't normally pay sales commissions.

But while IFAs might moan the FSA doesn't let them recommend investment trusts, it's ultimately their choice. If they really want to recommend investment trusts then ticking the FSA's boxes that allow them to do so is not usually that difficult.

Call me cynical, but it seems pretty obvious to me that the only reason most IFAs don't put themselves in a position to recommend investment trusts is the lack of commission. The same is also true of exchange traded funds (ETFs).

I do have some sympathy for IFAs insofar as the FSA is making their life rather difficult and expensive these days, but as a consumer I would much rather use an adviser who's allowed to include investment trusts in their recommendations than not. And I'd make sure that adviser really knows their stuff as good research is especially important when putting money in investment trusts - there's greater scope for losing money (due to share price volatility and/or gearing) compared to unit trusts.

Assuming the FSA's Retail Distribution Review plans go ahead then from 2013 an adviser will only be able to call themselves independent if they can advise on the whole range of products suitable for you - which should finally force them to consider investment trusts and ETFs when making recommendations.

dunstonh

Perhaps if for the benefit of your clients you learned a little more about ITs you would understand that that's a huge generalisation.

In reality, there are ITs with very low risk, including having discount stabilisation policies, and both UT/OEICs and ITs with very much higher risk in return for a potentially higher return. The choice is there for the investor but I don't understand why that should be a reason for advice not being available.

What is required is more IFAs with the competence to give comprehensive balanced advice and generally higher standards.

As per normal, you ignore what is written and choose to go off on an anti IFA rant.

The comments of Justin Modray https://www.candidmoney.com, himself a former IFA, seem to sum it up well:

The problem is that cynical people and those with chips on their shoulders will usually go looking for conspiracy theories before looking at the obvious. Perhaps you should look at the FSA discussions on the subject where the FSA themselves has admitted that their rules allowed some ETFs whilst not allowing others but lacked clarification on which were and were not allowed. Also, if it was already allowed, why would the FSA be changing the rules to allow it.

The FSA says in respect of post 2012 rules in addition to packaged products, the definition of ‘retail investment products' will include: unregulated collective investment schemes, all investments in investment trusts (not just those in investment trust savings schemes) as well as structured investment products. It also includes other investments that offer exposure to underlying financial assets, but in a packaged form, which modifies that exposure compared with a direct holding in the financial asset.

darkpool

I think it is a fact to say that ITs have a lower annual charge than UTs. I think it is fair to say that the lack of commision is the reason IFAs don't recommend ITs.

Surely the IFA should be acting in the customers interest and recommending ITs?

jamesd

Rollinghome wrote: »

In reality, there are ITs with very low risk, including having discount stabilisation policies

For some reason the thought of an investment trust manipulating its price by buying or selling shares in itself doesn't fill me with unbounded enthusiasm. Odd that price manipulation is often pitched as a positive thing when in a unit trust or OEIC you can get the real value of the investment all the time, no price manipulation by a board required, or allowed except within a tiny range.

What do you make of say an IT offering more shares in itself, thereby reducing the value of the shares held by existing owners? Fidelity China Special Situations, for example. Lets give away some of the value of the investment you have and give it to other people is how that sort of thing looks.

Price manipulation in ITs is normal. Not in unit trusts and OEICs. Some people are willing to accept those manipulations to get what ITs offer but it's not a particularly pleasing thing to contemplate.

74tnemele

jamesd wrote: »

For some reason the thought of an investment trust manipulating its price by buying or selling shares in itself doesn't fill me with unbounded enthusiasm. Odd that price manipulation is often pitched as a positive thing when in a unit trust or OEIC you can get the real value of the investment all the time, no price manipulation by a board required, or allowed except within a tiny range.

What do you make of say an IT offering more shares in itself, thereby reducing the value of the shares held by existing owners? Fidelity China Special Situations, for example. Lets give away some of the value of the investment you have and give it to other people is how that sort of thing looks.

Price manipulation in ITs is normal. Not in unit trusts and OEICs.

Talking about price manipulation jamesd not seen you on the silver thread. You are missed.

Rollinghome

dunstonh wrote: »

The problem is that cynical people and those with chips on their shoulders will usually go looking for conspiracy theories before looking at the obvious.

Could you explain why Justin Modray should have a "chip on his shoulder".

Is it reasonable to a assume that being an IFA who, for whatever reason, isn't authorised to advise on ITs might influence your opinion? Or would that be cynical too?

Your frequently expressed view that everyone else is an idiot or with a chip on their shoulders and that "Martin Lewis has no financial qualifications or knowledge" https://forums.moneysavingexpert.com/discussion/2966758 shows an extraordinary lack of respect for others.

pinkteapot

jamesd wrote: »

Price manipulation in ITs is normal. Not in unit trusts and OEICs. Some people are willing to accept those manipulations to get what ITs offer but it's not a particularly pleasing thing to contemplate.

UTs/OEICs cannot manipulate their price - they have no means of doing so. The price per unit is simply the value of all the assets in the portfolio divided by the number of units in issue (otherwise known as the NAV per unit).

ITs are listed companies and you are buying shares in that company. The price the shares trade at is broadly in line with the underlying NAV per share on the company's books but at any given time the shares are likely to be trading at a premium or discount to NAV. An IT is like any other listed company (e.g. Tesco). They can aim to boost their share price with corporate actions such as share issues, company restructures etc. The Directors will typically do this if they want to decrease the discount the shares are trading at by boosting the share price.

In down-markets you can see a doubly whammy with an IT because (1) the NAV is going down and (2) the discount is widening as the sentiment on that sector/country dips. Therefore your share price can go down by more than the actual market in which the Fund invests (as reflected in the NAV movement).

On the other hand, you can have more upside than the market during bounces. If you buy an IT when it is trading at a large discount you can potentially do very well off it, if you understand the reasons for the discount and have a view on whether these circumstances will change.

Since ITs can be geared, they can potentially outperform the market on the upside but can underperform by more than UTs on the downside.

All of these are reasons why ITs are riskier than UTs/OEICs (when comparing like-for-like on sectors/countries).

jamesd

74tnemele wrote: »

Talking about price manipulation jamesd not seen you on the silver thread. You are missed.

There's a limited amount of BS that I'll go for, so I take it in small and infrequent doses.

purch

What do you make of say an IT offering more shares in itself, thereby reducing the value of the shares held by existing owners? Fidelity China Special Situations, for example

I don't think that is the case with the Fidelity Fund.

I think the way that this offering is structured means that existing shareholdings will not be diluted.