Perpetual Income Acc Fund or Edinburgh Investment Trust?

le_loup

moneylover wrote: »

First of all Invesco Perpetual Income Acc fund....I do not understand how a price is arrived at ( noon each day) - for a fund can anyone explain - is it based on how many people have bought in or sold the previous day and is its only relationship to the stockmarket that people who are worried about holding shares are more likely to switch to fairly safe income producing funds such as Perpetual Income when the news is consistently bad.

The price of a unit trust is based upon the Nett Asset Value of the fund the pricing point (12:00?) each day. The NAV is the stock market price of the shares comprising the fund plus any assets less any liabilities that are not shares. It has nothing to do with any demand or otherwise of the fund at the pricing point. but has everything to do with the demand or otherwise of the underlying shares.

Ark_Welder

moneylover wrote: »

First of all Invesco Perpetual Income Acc fund....I do not understand how a price is arrived at

http://moneyterms.co.uk/nav/

moneylover wrote: »

Moving on to the Trust, I presume that the premium I have to trust is the one on the Invesco website

(sorry - I have to grin!) If you look at the daily factsheet, you will find four calculated NAVs... http://www.funddata.com/invescpdf/225.pdf The same number can be found in the RNS releases of the daily NAV.

Based upon combinations of the following: including or excluding undistributed revenue; valuing debt at par or at fair value (also known as market value).

Perhaps someone else can explain the logic of having a NAV that excludes undistributed revenue? To me, if it hasn't been distrubuted then it is still an asset, and when (most of ) it is distributed then the NAV and share price will both adjust accordingly.

Calculating the NAV with debt at fair value assumes that the debt would be redeemed at current market prices, whereas NAV with debt at par assumes that the debt will not be redeemed until its maturity date. I think that 'fair value' was brought in a few years ago because of some accounting standard or another with which IT's (and other companies) have to comply. But if debt is trading above par then it is unlikely that it would be redeemed (unless ongoing finance costs made it cheaper to do so), so I would use the debt-at-par NAV: it is probably more stable than the other because of market influences on the price of that debt. If fair value was below par at any stage and it was bought back at a lower price then that ought to give a nice uplift to this NAV.

moneylover wrote: »

Whichever website you look at the premiium the interest rate seems to be the same more or less.

Check the notes on the relevant web-sites to see which NAV they are using, and the date it was calculated. Looks like Morningstar and Trustnet use (different) NAVs published on that day, whereas the FT and AIC are showing the previous day's figures (both assume after the markets have closed).

moneylover wrote: »

But the point I was trying to make was that I wont really get that as my £3000 is not buying at a nil discount/premium. I will get less than what £3000 would buy me if it just depended on share price.

Ultimately, what you 'get' depends upon the relevant share prices when you buy and subsequently sell, and not the NAV or the discount/premium - just the same as with ordinary company shares (for which we all dilligently calculate value so as to determine whether they are cheap or not... (or not!) ).

Discount/premium might be used as a rough timing guide, but your returns are made on the price of the shares.

moneylover wrote: »

So how do I work out what I would REALLY get if say the interest was 4.4% for example.

You mean dividend yield? If so, then it is expressed in relation to the closing share price. (Sometimes, an annual report or similar might quote it in relation to NAV or issue price, but if they do then this will be explicitly expressed).

moneylover wrote: »

Also the question about premiums/discounts. I dont understand why they are there - they must skew the share price which is what you wouold normally expect to reflect supply and demand. So how are they worked out?

On the (un-numbered) 6th page: http://www.theaic.co.uk/Documents/Factsheets/AICIntroductionFactsheet.pdf

moneylover wrote: »

The other question that was not answered re the Trust was about the performance fees - how likely are they to kick in?

Firstly, you could have a quick look at previous year's annual reports to determine whether a performance fee has been paid or not (management changed in 2008?). Secondly, what's your view on how the UK markets will do over the next few year...?

I haven't looked into the performance fees for this trust, but what I would look out for are when 'outperformance' includes a negative return (i.e. NAV falls but still does better than the benchmark), and whether or not there is a high-water mark (i.e. the highesst level at which a performance fee has been paid must be breached before it is allowed again).

Ark_Welder

Might be of interest...

http://www.trustnet.com/News/Research.aspx?id=284786

inflationiscoming

http://investor.invescoperpetual.co.uk/portal/site/ipinvestor/fundscentre/latestprices/historic

moneylover

thank you - especially Ark Welder for very detailed response
I understand that the yield is relative to share price but if the premium is 4 I will have 4% less shares is that right? Thats why I want to know which NAV to use in the hope I ccould then work out what my TRUE rate of interest would be if I spent £3000 on these shares tomorrow - they quote a current interest rate of 4.3% and because its per share I would get the 4.3% but I would have less shares than if no premium so effectively get less money. If that's correct I suppose I will have to phone Invesco tomorrow to find out which of the possible 4 figures is used -
OR am I getting this all WRONG - does the premium/discount not affect anything in practical terms and I just look at the premium and realise the company s higher valued because its popular in the current climate? On the basis of the last two postings I think this might be so and that I might have been TOTALLY misunderstanding how it all works.......(ie up a gumtree)

Regardless of the above it is rediculous if different publications/websites are using different NAVs for the premium. I think I might try and work it out over the next few days
Thanks again and hope I am not taking up too much of people's precious Sunday!
Yours with a bad headache......Moneylover

Ark_Welder

If you buy exactly £3000 worth of shares and the yield is 4.3% then you would have received £129 in distributions over the year. The NAV might work out to be £3010 (i.e. share price at a discount) or £2990 (meaning a premium), but you will still have had £129.

If the shares were at a 4% premium one day and the next day the NAV rose to be the same as the share price (which remains static) then you would purchase exactly the same number of shares on both days.

moneylover

Ark Welder, I think I am a bit dim. So to be certain of what it means, if I buy £3000 shares at £10 each that gives me 300 shares regardless of if the premium is 5% or 10%? ie the number of my shares or value of my shares is not cut down by the premium?
Thank you

moneylover

inflationiscoming wrote: »

http://investor.invescoperpetual.co.uk/portal/site/ipinvestor/fundscentre/latestprices/historic

That is just what I was looking for
So if the price is set at midday then it reflects the underlying value of the holdings since midday the previous day, averaged out over trading hours -is that right? So if you placed a trade with HL after the stock exchange closed at 4.30pm you would have some idea whether the price was likely to be going up or down but you would have no idea what might affect it the next morning - is that right? I am presuming that with a heavily traded fund like this one you would get your holding on the day after you placed the trade. I think with HL you have to get the trade in for when they open in the morning, you cannot wait and see how the stock exchange opens.
With volatile markets it slightly troubles me that with funds you dont know what price you are buying in at.

Ark_Welder

moneylover wrote: »

Ark Welder, I think I am a bit dim. So to be certain of what it means, if I buy £3000 shares at £10 each that gives me 300 shares regardless of if the premium is 5% or 10%? ie the number of my shares or value of my shares is not cut down by the premium?
Thank you

Correct. The share price is a reflection of investor demand - just like other quoted companies, e.g. BP, Tesco etc. The NAV is the what the underlying assets are worth, but it is not affected by the share price: more the other way round because movements in NAV may mean that more or fewer investors want to hold the shares.

Think of a company such as British Land (a REIT, in this case). It owns buildings that have a value - which won't fluctuate on an intra-day basis. The price of its shares will fluctuate according to investor demand, but this does not affect the price of the buildings that the company owns. If more people decide to sell the shares than want to own them then their price will fall, so if you then buy £3000 worth of shares you might be buying £3010 worth of buildings. And the opposite case for more people wanting to buy the shares than sell.

However, the rental income from the building will be the same regardless of the share price, and assuming that it is all distributed to shareholders, the yield will fluctuate inversely to the movements of the share price. Hence, the quoted yield is based upon share prices and not NAV.

An IT that holds shares as its assets will have a NAV that fluctuates more frequently than one which owns buildings because the prices of the shares that it owns will also (probably) move on an intra-day basis. This is why you will see daily NAVs quoted for share-based ITs (to give an up-to-date snapshot of the value of the assets), but perhaps only monthly for PE and hedge-fund ITs where the assets are revalued less frequently, and similar with REITs.

Ark_Welder

moneylover wrote: »

With volatile markets it slightly troubles me that with funds you dont know what price you are buying in at.

But whether the price rises of falls, the value of the units bought will still amount to £3000.