are investment trusts an investing style?

12tonelizzie

are investment trusts an investing style?

jimjames

1) They cover areas that funds do not (eg private equity)
2) They can cover areas that may be less liquid and therefore not at same risk of outflows that funds have
3) Discount can benefit as you get 100p of assets for 80p for example
4) Charges can be lower than funds for the same remit

Ark_Welder

I wouldn't class investment trusts as a style. Have you seen Guide to investment companies from the AIC?

Because they are a closed-end structure and traded on stock exchanges like other companies, the investment manager does not have to worry about inflows and outflows of money from investors. If there are more sellers than buyers then a fund manager would probably need to sell fund investments to raise enough cash to be able to pay everyone. But an investment trust/company manager would not have to sell investments: because its shares are traded on an exchange, the price of the shares would fall - just as with any other company. And if there were more buyers than sellers, a fund manager would need to invest the extra cash but the shares of the investment trust would just rise - no new money for the I.T. manager. This rising and falling due of the share price is what leads to the discount and premium differences to the I.T.'s net asset value.

The advantage of having a fixed pool of money to invest is that it allows the fund manager to invest in less liquid assets, e.g. private equity and property, and to not have to worry about trying to sell these when markets are falling: (Q: how many had unit trusts that invested in property and found that they suddenly were unable to sell when they wanted to back in 2008/09?). An I.T. manager can also sit tight when shares are falling, meaning that the I.T. is not out of the market when there is a recovery - unlike a UT/OEIC manager who might need to sell assets into a falling market and then repurchase them in a rising market. (1987 Black Monday, anyone?)

TERs on I.T.'s can be lower than on the equivalent type of OEIC fund (no commission, for starters), but this is not guaranteed and there has been a trend for newer I.T. launches to carry higher AMC's than longer established companies.

I tend to use I.T.'s over funds, which I think is just a preference when it comes down to ordinary equities.

Ark_Welder

FTSE EPRA/NAREIT Developed Markets Property Yield Fund

A different beast to what I was thinking of: this actually invests in shares of propery companies and REITs rather than physical buildings. Lack of clarity in my post, I think. I know that some funds and platforms might refer to 'property funds' or 'commodities funds', but I see them as equities funds that specialise in propery companies and the commodities industry companies.For me, property means buildings (and/or land) and commodities means either the physical stuff extracted from the ground, or derivatives based thereon. I'll have to try and remember....other people are not mind readers!!

There are investment companies (IT) that invest in property securities worldwide, so there would be the option to use one of these rather than the ETF, although the latter is a tracker whereas the IT's are not. Again, an IT would not need to buy and sell the underlying securities according to investor demand, but an ETF probably would. One observation that I have of this ETF is that its base currency is US Dollars and that it is not hedged into Sterling. So there is currency risk involved too - which can work to a Sterling-based investor's benefit the Pound falls in price against the Dollar.

As for private equity, have a read of what is available from the AIC. If you are still interested then perhaps have a look at some of the companies in the relevant sector and read what they do - they can operate in different ways too. Don't invest for the sake of it though - not even a small punt! PE/VC also has its cycles and some companies were badly caught out during the credit crisis - just as some of the IT's that invest in property (the bricks and concrete type!).

Totton

Hi Lizzie,
I guess the MF are trying to say that someone who invests in IT's probably uses them rather than OEICS as a conscious decision to go for the closed-end (style) of packaged investment.

As for whether you should consider IT's, my IT holding account usually outperforms the accounts holding principally OEICS, however the £200 HL fee for IT's in an ISA does as you suggest mean that the case for only holding funds has some legs. That problem is extinguished from Aug 1st as the annual fee reduces to £45 which I think I can recoup with the IT's.

Although it has been mentioned that IT's offer sectors not well covered by OEICS such as Private Equity, Timber etc, a major benefit of IT's to me is that many have a global-growth remit and save me the problem of asset allocation, geography etc, not entirely as each trust differs but they are to me a nice 'buy and hold' product.

Hope that helps,
Mickey

atush

I invest in ITs, in preference to OEICs in general- for allthe reasons listed above. In fact, out sied of pensions I hold no OEICs. The few funds I wanted to buy (such as Fildelity Special situations, quite often have a 'mirror' investment trust so that is what I would by over the OEIC (or Unit trust in days gone by).

But my ITs are not in ISAs, so I don't have those large fees from HL or elsewhere. And buying costs are very low. as most of mine (I have a few that I have bought individually thru my brolkerage acct so paid a fee for buying) are from monthly savings plans where buying costs are very low indeed. And I have benefited from Drip feeding into the market, and 'pound cost averaging'.

And they pretty much ALL have performed well for me over the years. Some better than others, but up overall even in the bad days when markets were falling.

I don't know if this a 'style' or not. But it is what I as an investor do.

jimjames

12tonelizzie wrote: »

The managed-UT/OEIC-skeptic brigade cite 2 problems, namely high charges and widespread manager underperformance. I appreciate that ITs have lower charges; but it also seems that IT managers get slagged off less than UT/OIEC managers. Is there evidence to suggest that IT managers are more skilled? I gather that IT managers are less constrained in how they operate, but does this result in statistically better performance?

Something that can (and I believe does) affect performance is the constant inflow and outflow that an UT has and an IT doesn't. This makes it much easier for the IT manager to buy and hold shares that they believe will perform well without having to sell holdings to fund redemptions that the UT would have to do.

pressuredrop_2

12tonelizzie wrote: »

The managed-UT/OEIC-skeptic brigade cite 2 problems, namely high charges and widespread manager underperformance. I appreciate that ITs have lower charges; but it also seems that IT managers get slagged off less than UT/OIEC managers. Is there evidence to suggest that IT managers are more skilled? I gather that IT managers are less constrained in how they operate, but does this result in statistically better performance?

Harry Nimmo OEIC 1yr +48%

Harry Nimmo IT 1yr +80%

pressuredrop_2

e.g. (if mirror available)

Personal Assets IT - Troy Trojan OEIC

Pattern? You decide.

Mr Nimmo IT? Yup, that's the one.

atush

Well it was a pattern Isaw on a few of the funds I was looking at that had mirrors when i did my research proir to buying. But I only looked that those that I was interested in, not the whloe market.

Maybe trustnet has some info on this?

You also need to take into acct how you feel about gearing. Some people like it, some are afraid of it. and ITs can do it.

Ark_Welder

12tonelizzie wrote: »

I'm personally averse to buying-to-let but worry that physical property is a good asset class I'm excluding. So would a 'real' property IT get me some exposure to this asset class which my global property-at-several-removes ETF isn't giving me?

The IT's in question tend to hold business premises, such as offices, industrial units, shopping centres, individual shops, etc. Some may hold residential. I don't think that there is a pure residential property IT or REIT currently listed in London, but this might be changing later this year due to changes announced on the Budget in March. There are a couple of ordinary property companies that are residential-based, and funds called Property Unit Trusts (PUTS), but the latter usually have a high minimum entry and are open to experienced investors only (if they accept anyone other that institutions), or through an advisor.

Comparing your ETF with the equivalent IT (i.e. one that invests in the securities of property companies), what you might gain would be the removal of currency movements as a factor in the investment; and, like any other asset type, the fact that an ETF might need to sell investments to meet redemptions whereas an IT would not. Personally, I would probably only consider the first of those in this particular case.

12tonelizzie wrote: »

but it also seems that IT managers get slagged off less than UT/OIEC managers

Perhaps it is because ITs are less widely used and those that do go in with a more positive approach?

pressuredrop wrote: »

Harry Nimmo OEIC 1yr +48%

Harry Nimmo IT 1yr +80%

Harry Nimmo OEIC 1yr +48%
Harry Nimmo IT 1yr Share Price +80%

Harry Nimmo IT 1yr NAV +60%

So whilst the IT has outperformed the OEIC on a NAV-only consideration (10% net gearing in force), the return to an investor has also been magnified by the narrowing of the discount,

Article in today's FT states that SLI are increasing the AMC on the OEIC to 1.6%

Personal Assets IT - Troy Trojan OEIC

PATplc has a very strict discount control mechanism and a very loyal following (:)), so share price variance from the NAV should be minimal. Trojan O units have 1% TER, so is low compared to other managed funds (the I units have 1.5%), and PATplc is not currently geared (slightly long cash, in fact) so the similar performances is to be expected for the similar portfolios. I hold both PAT and Trojan - my 'security blankets'!