Investment Trusts

brodev

Over the years I have accumulated small amounts of shares given to me by bigger companies. for example "THUS". These are worth so little that it would cost almost as much to sell them as I would receive from them. I know that , in the past, some Investment trusts have taken shares and converted them into their own shares and they have done that for free. Does anyone know of any IT doing that just now?

Milarky

I know that , in the past, some Investment trusts have taken shares and converted them into their own shares and they have done that for free. Does anyone know of any IT doing that just now?

Do you mean an in-house 'sell and buy' service - where other holdings were sold in the market, but waive the commission normally paid on the sale, and the 'proceeds' just used to purchase the IT shares [avoiding the usual dealing and stamp duty costs?] I don't see how 'conversion' of a holding could take place any other way, really  ??? (I would then guess you're looking at 'minimum investment' limits too)

brodev

Probably that is what it was Milarky although I am a bit vague as I wasn't all that interested then :-[

david78

Most of the investment trust management groups offer a share exchange facility. You ask them for a "share exchange" pack and they send you the appropriate forms.

You send them the shares and they open an account in the investment trust of your choice. There is usually a small buying fee for the IT, but the terms are usually good value if you have lots of different certificates that you want to consolidate into one investment trust share.

I'm a big fan of investment trusts. Contact information can be obtained from the AITC https://www.aitc.co.uk.

Milarky

Going a bit off-topic here... but anyway here goes.

ITs often carry 'discounts' of substantial proportions. These 'discounts' measure the difference between what that IT share trades for in the market, and what the individual company shares held by that IT in its portfolio trade for in the market.

For instance an IT has shares in Company A and Company B. A's shares are valued at £1.20 and B's at 80p. There are 3 times as many B shares as A shares.

Theoretical share price of IT is therefore 75% of 80p plus 25% of £1.20 or about 90p.

Yet the IT trades at 81p - a '10 percent discount'

No one really knows why this happens [and not all ITs perpetually trade at discounts - only most of them]. But

a) Is it a 'bad' thing?

b) Can it be turned to any 'foolproof' advatage?

In answer to a), it is said, if the shares in the IT receive a full dividend [eg 3p for share 'A' and 2p for share 'B'] then that is money available for distribution, but 'cost' less to acquire than the equivalent method of buying the shares themselves, and the dividend per IT share can be higher as a result...

eg 25 'A' shares [75p dividend] cost £30
75 'B' shares [£1.50 dividend] cost £60

Total Dividend: £2.25 Total Cost: £90

100 IT shares
Poss Dividend: £2.25 Cost: £81

However, dividends are not simply paid out '£ for £' as they 'come in' [if they were, would not the discount automatically 'narrow' - so this may help explain where the 'discount' comes from?] What you get is what the Board decides....

In answer to b)...'taking advantage'... well I'm curious does anyone have any [non-investment related] thoughts [no 'share tips', please] on this one?

paul666

If they really are worthless to sell then you could give them to share gift http://www.sharegift.org.uk/sharegift/

This is what I did with some lastminute.com shares...

Reaper

In answer to b)...'taking advantage'... well I'm curious does anyone have any [non-investment related] thoughts [no 'share tips', please] on this one?  :)

The following is not foolproof and investment related but apart from that...!

The size of the discount is not constant, it varies. In the 1970's apparently it reached 25% whereas at other times it can just be a few percentage points. While I can't understand the logic it seems to be smaller when the stock market is doing well and larger when it is doing badly.

Currently some investment trusts are trading at historically high levels of up to 20% discount. Now if you believe the stock market is set to rise you can get extra growth by investing in them - getting the benefits of a rising market plus extra growth from a narrowing discount.

david78

Milarky,

The discount is genuinely useful if you hold ITs for the dividend (income). Your income is enhanced. I have found that over the longer term the discount is an especially good thing if I re-invest the income and combine it with monthly purchases ("pind-cost averaging") of shares.

There is no instant way of making money from the discounts though. The investment trusts are under a lot of pressure to reduce the discounts which they do by buying back and cancelling their own shares. This enhances the net asset value and the share price. IMHO some of the discounts on offer at the moment are a real bargain and should narrow over the next year or so. But please bear in mind these are shares so your capital is not guaranteed.

david78

Reaper,

You are right of course. But the stockmarket doesn't have to rise to make a killing. It is possible to make money if the stockmarket is stagnant -- but the discount narrows or disappears.