Investment Trusts Trounce Unit Trusts

Totton

Linton wrote: »

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.

I don't really get this though, if an IT company run one IT then they are bound to be less well known than say New Star but I know which one I'd rather own today (Seriously though, New Star did make me a nice tidy sum until they got really greedy and made a mess of things)

In my experience I have found that it isn't as simple as IT's do better than OEICS although in general I have been much happier with my IT's which strangely appear less volatile than I had expected. When looking for a new area of investment or perhaps to replace something else, then I'll consider IT's and OEICS, also ETF's as not all are bad.

Overall I prefer IT's as I enjoy feeling more involved through the greater transparency and reporting compared to the dire monthly fact sheets punted out by the fund industry.

Regards,
Mickey

BLB53

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.

The reason unit trusts are more well known is because they have been constantly promoted by IFAs and Banks etc who have creamed off millions from unsuspecting punters in up front charges and trail commission. Meanwhile, lesser known ITs who pay no commission and therefore are of no interest to commission hungry 'advisers', continue to outperform the so called star funds and managers.

Ark_Welder

BLB53 wrote: »

The reason unit trusts are more well known is because they have been constantly promoted by IFAs and Banks etc who have creamed off millions from unsuspecting punters in up front charges and trail commission. Meanwhile, lesser known ITs who pay no commission and therefore are of no interest to commission hungry 'advisers', continue to outperform the so called star funds and managers.

Historically, unit trusts could advertise in the press and provide application forms, whereas investment trusts could not because of their company structure (I believe). Plus, ITs could only be bought from a stock broker until F&C brought in their savings schemes in 1984(ish).

The company structure of ITs also makes it far less tax efficient for them to have corporate bonds and other credit as their primary investment asset. This is why there are far fewer ITs than OEICs in this area, and why the majority of the ones that do tend to be domiciled offshore (mainly the Channel Islands, in my experience). There has been talk about changing the tax regulations to equalise the treatment for IT, but nothing has been determined yet, as far as I know.

jimjames

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.

A few other things that may influence it too

1) IT has fixed asset pool so isn't constantly having to invest new money as a UT would have to do. Less incentive to trade should lead to lower dealing costs and more long term investment strategy.
2) IT doesn't have to sell assets to fund redemptions, sometimes for unit trusts with illiquid assets they may have to sell holdings that are good investments purely because they can easily be sold.
3) Directors should be purely focussed on the best deal for shareholders ie investors. UT company is aimed to make more money for their owners.

jimjames

Linton wrote: »

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.

I'm sure it is just terminology but ITs are actually owned by their investors, the shareholders. I guess you mean managed rather than owned but it is an important distinction as UTs are owned by the management company who sell the units.

darkpool

If ITs perform better I just wonder why the majority of people here seem to invest in Unit Trusts? I wonder if it's because UTs pay commission?

BLB53

If ITs perform better I just wonder why the majority of people here seem to invest in Unit Trusts?

Yes, I am left wondering this myself. The only explanation is the amount of money spent on promotion and creating 'brand awareness' is very seductive to newcomers. Of course, like most advertising, it is very carefully targetted to 'reach the right audience'.

jimjames

darkpool wrote: »

If ITs perform better I just wonder why the majority of people here seem to invest in Unit Trusts? I wonder if it's because UTs pay commission?

Those "in the know" or more experienced investors use both in my experience. I think ITs are one of the hidden gems that come next year may suddenly become popular again.

Linton

darkpool wrote: »

If ITs perform better I just wonder why the majority of people here seem to invest in Unit Trusts? I wonder if it's because UTs pay commission?

Some rather more significant reasons....

There are far more UTs than ITs, about 6 times looking at Trustnet, with a correspondingly wider choice of investment and investing style.

Many ITs are small and obscure and so havent been advertised whereas many UTs are managed by the major fund managers who can afford to advertise and put out glossy leaflets and mailshots.

UTs can sell as many units as they can persuade people to buy and the funds invested expand directly from the money paid in. Conversely ITs consist of a fixed number of shares and so if they are successful and popular the share price increases eventually to rise above the NAV, which discourages buyers. So the sales of ITs are self-limiting. The money spent on buying an IT doesnt normally go into increasing the funds available for investment - it goes to the seller.

So the UT mechanism is much more flexible with respect to changes in demand. ITs couldnt cope with the numbers of people currently investing in UTs.

I am sure others can come up with further factors; this is my list from a few minutes thought.

amictus

gadgetmind wrote: »

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.

Ark_Welder wrote: »

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

Interesting stuff. Thanks for the links.