when to buy into an investment trust?

Reaper

jimjames wrote: »

I am very wary about buying an investment trust at a premium unless there is a very good reason as you make a loss if or when it does revert to discount.

I completely agree. My post was to warn people off an over simplistic "more is better" approach to discounts rather than suggesting buying one at a premium. I too would be suspicious of any ITs trading at a significant premium.

A prime example is Fidelity China Special Situations. When first launched it traded at a substantial premium, they then issued more shares and the premium has dropped so that it is now at a small discount. Much of the poor performance has been from the premium disappearing as well as the underlying assets dropping in value.

I remember discussions on these boards comparing it to the fund I had chosen - First State Greater China. On the surface the Fidelity one streaked ahead but the actual NAV had not, it was just the share price racing to a premium by punters drawn in by a famous fund manager.

I looked just now on Trustnet and did a graph comparing the two. I'm not sure if this link will work but if it does you can see how the funds have reversed:
http://www.trustnet.com/Tools/Charting.aspx?typeCode=FCFGCGA,XO:GRTCHN
EDIT: No the link hasn't shown them both. To see it click on the "Investment Trust" tab and add "Fidelity China Special Situations" to the graph.

Ark_Welder

atush wrote: »

I am finding this facintating to read.

I am big on ITs, but have NEVER bought one at a premium. Ever.

I don't look for a big discount to be sure, i just have never trusted anything that is sold above NAV. I think this is an innate prejudice of mine perhaps.

Then you will miss out on the likes of Personal Assets Trust, which has a very disciplined discount-control mechanism. It is never usually much more than a 1% premium, but because of the the IT's strategy and investments it can offer a defensive position in the current climate - if you have a cautious outlook.

Another that frequently trades at a premium is Temple Bar. The widest the discount got to that I can recall on this over recent years is 6%, which was in 2008/09. Not buying this at a premium in the past would have meant missing out on very good performance compared to its peers.


My opinion of the Fidelity China Special Situations launch is that it was as much a case of a marketing of the manager rather than the fund, and it is the former that attracted the money rather than a fundamental reason for buying the IT itself. When launches such as this are made available to the retail market then it is usually a sign that that sector/area is at or near its peak - especially if there are a rash of similar launches.

atush

Then you will miss out on the likes of Personal Assets Trust, which has a very disciplined discount-control mechanism. It is never usually much more than a 1% premium, but because of the the IT's strategy and investments it can offer a defensive position in the current climate - if you have a cautious outlook.

Another that frequently trades at a premium is Temple Bar. The widest the discount got to that I can recall on this over recent years is 6%, which was in 2008/09. Not buying this at a premium in the past would have meant missing out on very good performance compared to its peers.

I suspect I might be able to mentally 'handle' a 1% premium. But 6%, not a chance lol. Unless I invest the money I pulled out of gold the other month- I consider that 'free' money lol. I more than doubled my investment so still have the oringal stake plus some 'yield' in it. It is a value thing to me. I won't pay more than something is 'worth' to me.

Ark_Welder

atush wrote: »

But 6%, not a chance lol.

6% was TMPL's widest discount. Maximum premium - to my knowledge - was around 5%, which was a sign for me not to add more at that time too.

Totton

Ark_Welder wrote: »

Then you will miss out on the likes of Personal Assets Trust,

Very true, trusts such as PNL vary little in their discount and over a decent period of time I think it is fair to say that the discount/premium is irrelevant. Much more important than the current premium / discount is the long term premium/discount, if it is currently way off the norm then it can represent either an opportunity or a warning to wait a little.

On the subject of an OEIC being disadvantaged due to the need to sell/buy dependant upon demand, this is mitigated by the cash pot being held by the fund, often these are kept topped up to lessen the impact of buys & sells of its units.

Regards,
Mickey

GrowingMyOwn_2

Investment trusts usually trade at a discount to nav. The few that trade at a small discount to NAV or even a premium are usually a sign of faith in the manager's competencies.

Consider the case of Edinburgh - it is particularly popular because investors are buying access to Neil Woodford's skills and knowledge.

Investment trusts can be excellent investments. All things being equal, one would ideally want to buy them when:-

1) the discount to NAV is just on the point of narrowing.
2) the value of the underlying portfolio is increasing.

moneylover

GrowingMyOwn wrote: »

.

Investment trusts can be excellent investments. All things being equal, one would ideally want to buy them when:-

1) the discount to NAV is just on the point of narrowing.
2) the value of the underlying portfolio is increasing.

can you see this on Trustnet? Could you give an example of where this is happening perhaps? Am still getting to grips with Investment trusts.

Ark_Welder

moneylover wrote: »

can you see this on Trustnet? Could you give an example of where this is happening perhaps? Am still getting to grips with Investment trusts.

Trustnet shows performance of NAV and share price compared to the sector of the relevant IT. When you have a list of IT's displayed, click on the name of one of them and there in the Performance section will be the graph - although these will only go back 5 years maximum, and 1 month minimum

GrowingMyOwn_2

moneylover wrote: »

can you see this on Trustnet? Could you give an example of where this is happening perhaps? Am still getting to grips with Investment trusts.

See what Ark Welder has written in post #19.

I'm not able to post links, being a newbie, but google 'Z scores' and 'Investment Trusts historic discount to NAV' and you should pull up some useful info.

GrowingMyOwn.