155000 to invest

dunstonh

why do you say ITs are higher risk? from what I understand of ITs/UTs i would consider UTs to be higher risk, during a mass selling of units the fund managers will have to sell holdings.... a firesale isn't the best way to raise cash.... Some of these ITs have been on the go for a hundred year, tbh I would consider them safe but dull investments.

I say they are higher risk as most are higher risk. That is not something that can be debated as it is factual. They are also considered more complex because

OEICs are valued on the value of their assets. Most of which will have a daily value. There can be issues if the assets are illiquid. Supply and demand is a big issue for ITs which can sell at a discount or premium to NAV.

OEICs cannot use gearing. ITs can.

This increases volatility and degree of volatility is an issue in measuring risk.

There are also higher risk types of ITS such as split capital investment trusts

Is there not evidence that shows ITs outperform the equivalent UT... something to do with lower fees.

ITs do have some good examples of outperformance as well as those with underperformance to the closest equivalent OEIC. Fees may play a very small part but if you compare clean prices, the OEIC is often cheaper or comparable. The difference is usually because the extra risks have paid off or the fund manager running the IT version often has a wider remit than the OEIC version.

ITs can have more control on supply of money into a fund. Some OEICs can suffer when becoming popular as they either end up with too much cash or have to buy investments they dont want which can in turn hit returns.

I'm not sure if I would be happy going to an IFA if he thought i had "low knowledge".

Nor would I. However, I said consumer. Should you perhaps consider your lack of knowledge of the risks you are taking?

IFAs have a legal requirement to recommend products and investments that are within the risk tolerance and the understanding of the individual. The FOS generally regard consumers as low knowledge and cautious in risk unless proven otherwise. So, recommending above risk profile or understanding is just a complaint waiting to happen.

gadgetmind

dunstonh wrote: »

Investment bond volume is low and certainly not the first thing most advisers turn to. The figures to not back that statement up. However, tied agents are notorious for using it in isolation and that is usually bad advice.

I was using the term "adviser" in a very broad sense, for which I apologise. Yes, IFAs are better in this regards as I understand they are supposed to provide comparisons between Investment Bonds, ISAs, etc., but we've seen a few cases on these forums where this doesn't seem to have happened.

We've also seen youger people saving for house deposits being steered into IBs by "advisers" at banks and then hitting huge tax issues.

This is why I stressed that the investor needs to be sure that an Investment Bond is a good fit for them investment wise and tax wise.

doubleJackD

dunstonh wrote: »

I say they are higher risk as most are higher risk. That is not something that can be debated as it is factual.

OEICs are valued on the value of their assets. Most of which will have a daily value. So, unless the asset is illiquid, supply and demand doesnt hit OEICs anywhere near as hard to ITs which can sell at a discount or premium to NAV.

do you have any evidence that ITs are higher risk than UTs?

A lot of ITs trade at a discount to the Net Asset Value. I would say buying a IT for a 100 pence that has a NAV of 120 pence is safer than buying a UT for a 100 pence that has a NAV of 100 pence.....

During market turmoil a lot of UT holders sell their holdings, how can it be good for a UT manager to be forced to sell assets when the market is going down?

It's basically a self reinforcing negative feedback loop ie

markets fall - UT owners redeem units - UT managers sell shares - markets fall - UT owners redeem units

I'd rather have my money in an IT anyday....

xylophone

What is mother's financial situation?

dunstonh

do you have any evidence that ITs are higher risk than UTs?

If you dont know this then I suggest you use google and see lots of links that explain the risks.

A lot of ITs trade at a discount to the Net Asset Value. I would say buying a IT for a 100 pence that has a NAV of 120 pence is safer than buying a UT for a 100 pence that has a NAV of 100 pence.....

That assumes that there really is a discount. It is only a discount if the asset value rises. That is part of the increased potential for gain but it is also one of the increased risks that exist because you could buy at a premium.

During market turmoil a lot of UT holders sell their holdings, how can it be good for a UT manager to be forced to sell assets when the market is going down?

It can impact on the return potentially but most funds hold sufficient cash to cover most periods. However, the IT would suffer with supply and demand to a greater extend due to supply and demand affecting the price.

I'd rather have my money in an IT anyday....

Thats fine. However, you seem to be focusing on the upside of ITs without understanding or even knowing about the downside. Not knowing the risks you are taking is not a good thing.

doubleJackD

dunstonh wrote: »

If you dont know this then I suggest you use google and see lots of links that explain the risks.

That assumes that there really is a discount. It is only a discount if the asset value rises. That is part of the increased potential for gain but it is also one of the increased risks that exist because you could buy at a premium.

It can impact on the return potentially but most funds hold sufficient cash to cover most periods. However, the IT would suffer with supply and demand to a greater extend due to supply and demand affecting the price.

i did google to see whether ITs or UTs were riskier, i found little evidence

how can a discount not be a discount, if the share price is X and the NAV is X plus 20% by definition the IT buyer is getting a discount....

i agree that UTs hold some cash to redeem units, however we all know that every couple of years or so that the markets wobble and UT holders get scared and sell. The UT managers don't have enough cash to cover these periods.... you think UT managers get a good price when they sell assets in these periods.... no because a forced seller gets rubbish prices.... and a forced seller in an illiquid market will get a terrible price.

Totton

i did google to see whether ITs or UTs were riskier, i found little evidence

For me the use of gearing by an IT demonstrates the higher risk factor and in real-life experience I usually see my IT's liable to bouncing higher and lower at faster rates than comparable OEICS/UT's.

doubleJackD

Totton wrote: »

For me the use of gearing by an IT demonstrates the higher risk factor and in real-life experience I usually see my IT's liable to bouncing higher and lower at faster rates than comparable OEICS/UT's.

fair enough, but overall portfolio risk can be secured by having low risk assets to counteract the more volatile ITs. Maybe a mix of ITs and bonds.

Certainly my understanding of ITs is that they have lower fees and outperform UTs (perhaps because of the lower fees)

gadgetmind

doubleJackD wrote: »

how can a discount not be a discount

When it persists for years/decades or turns into an even bigger discount. Discounts can be a sign of an unfashionable investment area (often a good thing) or they can be a sign that no-one trusts the managers (less so!).

a forced seller gets rubbish prices.... and a forced seller in an illiquid market will get a terrible price.

Yup, this is why I avoid UTs for property and am even nervous about using them for bonds, EM equities, etc.

jem16

doubleJackD wrote: »

i did google to see whether ITs or UTs were riskier, i found little evidence

I found the evidence fairly widespread.

These factors tend to make investment trusts riskier than an equivalent unit trust, although returns could be greater

http://www.candidmoney.com/investment/investmenttrusts.aspx

how can a discount not be a discount, if the share price is X and the NAV is X plus 20% by definition the IT buyer is getting a discount....

It's these discounts that make investment trusts slightly more risky, since the value of your investment is affected by the amount that the 'discount to NAV' changes during the period of your investment, as well as the performance of the assets they hold.

If the share price rises and the discount narrows, you win. However if the share price falls and the discount widens, you lose.