Investment Trusts Trounce Unit Trusts

gadgetmind

http://www.fool.co.uk/news/investing/2011/10/18/investment-trusts-trounce-unit-trusts.aspx

Let's just say that I'm not wearing my surprised face.

atush

And lets say you are preaching to the Choir Gadget ;-)

BLB53

ITs will generally have the advantage because of their lower charges. I'm sure they will come into their own a lot more when they introduce a level playing field next year.

Ark_Welder

BLB53 wrote: »

ITs will generally have the advantage because of their lower charges. I'm sure they will come into their own a lot more when they introduce a level playing field next year.

Gearing at the right time is probably a greater factor. Few Trustnets, although there is some inconsistency between the first two...

http://www.trustnet.com/News/Research.aspx?id=274863
http://www.trustnet.com/News/Research.aspx?id=258101
http://www.trustnet.com/News/Research.aspx?id=262515

gadgetmind

Ark_Welder wrote: »

although there is some inconsistency between the first two...

I guess it also depends on whether you look at price or NAV. Dropping markets nobble ITs on NAV and tend to reduce premiums and/or increase discounts, which is a double whammy. Of course, such whammies present splendid buying opportunities.

saveonarola

I just posted on the Fool, but I thought I'd post here too, in case people didn't read the article.

For me, as a newbie investor convinced of the benefits of passive investing, the most interesting (unanswered) question raised by the article is what possible explanation there can be for the seeming consistency of performance of individual ITs compared to the seeming inconsistency of Unit Trusts/OEICs. If there's nothing in the nature of the funds themselves that could account for this, then it must be down to manager skill. Personally, I'm firmly in the sceptic camp when it comes to manager skill, so this has me scratching my head.

Ark_Welder

gadgetmind wrote: »

I guess it also depends on whether you look at price or NAV. Dropping markets nobble ITs on NAV and tend to reduce premiums and/or increase discounts, which is a double whammy. Of course, such whammies present splendid buying opportunities.

NAV first, then price. The former is down to the manager, the latter to investor demand. But using the two together can be a good contrarian indicator.

Too much of a premium has been put forward as an argument for choosing an OEIC over an IT if they are both managed by the same person. I suppose that a factor could be the platform through which the investments are made: some charge extra for holding shares and ITs (e.g. HL in an ISA/SIPP), others give a full rebate of the annual OEIC fees that are paid to the platform provider (e.g. ATS).

gadgetmind

saveonarola wrote: »

what possible explanation there can be for the seeming consistency of performance of individual ITs compared to the seeming inconsistency of Unit Trusts/OEICs.

I think ITs tend to take a longer term view and be more "steady as she goes", whereas the UTs tend to thrash around buying and selling to try and get short-term out-performance. Some might manage it but many don't, or if they do, not for long.

Ark_Welder

saveonarola wrote: »

I just posted on the Fool, but I thought I'd post here too, in case people didn't read the article.

For me, as a newbie investor convinced of the benefits of passive investing, the most interesting (unanswered) question raised by the article is what possible explanation there can be for the seeming consistency of performance of individual ITs compared to the seeming inconsistency of Unit Trusts/OEICs. If there's nothing in the nature of the funds themselves that could account for this, then it must be down to manager skill. Personally, I'm firmly in the sceptic camp when it comes to manager skill, so this has me scratching my head.

Possibly a couple of things: gearing, which should allow and IT to outperform on the way up; the closed-end nature of ITs, meaning that the manager does not have to worry about investors' cash flowing into and out of the fund.

Gearing can do the opposite on the way down, but that is where some skill could come into force with the manager reducing the level if it is believed to be more appropriate.

competitionscafe

UT's/OEIC's are also forced to dump stocks when they have a lot of redemptions (as happens in falling markets) whereas IT's do not.

Linton

ITs do appear on the whole to perform slightly better than comparable UT/OEICS. But some caveats....

1) Dont buy something because it is an IT: chose the sector and if there is an apparently good IT then go for it. If the funds that best meet your objectives are UT/OEICS then go for them. There is a much better choice of UTs/OEICS around.

2) I am concerned that ITs may be more volatile than the equivalent UT/OEIC as they can respond more quickly to short term fluctuations in the overall market. Because UTs are less easily and more slowly traded they may be less affected by possibly totally irrelevent events that spook the market.

3) Many ITs seem to be owned by people other than the well known major names. When buying something new I am happier if it is from a company with a good overall track record.