155000 to invest

doubleJackD

this is from the investors chronicle (part of the same group as the FT). i think the reasons given for IT outperformance are fairly plausible.

Obviously "low knowledge" people should stick with Unit Trusts though.


http://www.investorschronicle.co.uk/2012/07/25/funds-and-etfs/investment-trusts/investment-trusts-beat-open-ended-peers-qDBr3SoQ9FeIdN3MwvI3OK/article.html

Investment trusts are outperforming because they have a number of competitive advantages over open-ended funds, explains Mr Brierley.
Investment trusts typically have lower charges because they do not pay commission, eating less into the returns. This is particularly significant when compounded over the long term and has a material dilutive impact on higher-charging funds' returns.
"The ability to manage money without the distractions of daily cash flows from new monies and redemptions, often when the market is trying to execute similar orders, and the ability to invest in more illiquid investments and take a longer-term view are key features," continues Mr Brierley. "Oft-maligned, investment trusts' ability to gear (take on debt) is another tool that should enhance returns and one would like to think that the long-term return on equity will exceed the current cost of borrowing.

grey_gym_sock

doubleJackD wrote: »

i've read this a couple of times and I just can't decide what points you are making.

i''m not jamesd, but ... i think he was trying to demonstrate that you shouldn't just find a reliable source and cite their opinions ... you should examine what plausible sources say, see if it makes sense, see what follows from it, run a few calculations based on their numbers ... then you will have better understanding, and can come to your own conclusions.

dunstonh

Investment trusts typically have lower charges because they do not pay commission, eating less into the returns. This is particularly significant when compounded over the long term and has a material dilutive impact on higher-charging funds' returns.

Historically correct but now out-of-date as UTs go to clean share classes. Also, it fails to take into account dealing charges and platform charges which are explictly added on whereas with UTs they are (were) bundled.

"The ability to manage money without the distractions of daily cash flows from new monies and redemptions, often when the market is trying to execute similar orders, and the ability to invest in more illiquid investments and take a longer-term view are key features," continues Mr Brierley. "Oft-maligned, investment trusts' ability to gear (take on debt) is another tool that should enhance returns and one would like to think that the long-term return on equity will exceed the current cost of borrowing.

Yes. However, you do seem very confused about investment potential and investment risk. You continue to look at the upside as reasons to have them but fail to realise that some of the increased potential is down to increased risk.

ehhhhmmmm, you have me confused. What evidence have I requested for things not been said?

You are asking for evidence on things that have not been stated by anyone.

doubleJackD

grey_gym_sock wrote: »

i''m not jamesd, but ... i think he was trying to demonstrate that you shouldn't just find a reliable source and cite their opinions ... you should examine what plausible sources say, see if it makes sense, see what follows from it, run a few calculations based on their numbers ... then you will have better understanding, and can come to your own conclusions.

thanks, that makes sense. I just didn't understand it when his summary had points most people would agree with and points that seemed to be plain wrong.

• ITs have higher total costs once you pay for the things that are bundled into UT pricing. I disagree with this.
• ITs have can have higher volatility, risk, than UTs because of their gearing. I agree with
• ITs performance in studies is more greatly affected by survivorship bias than UT performance. I disagree with this
• Its' performance is in part higher because they take more risk, as expected for higher risk investments. I agree with this

doubleJackD

dunstonh wrote: »

You are asking for evidence on things that have not been stated by anyone.

Perhaps you could tell me what things have not been said that I'm asking evidence for... Or if you can't stop mentioning it.....

jem16

doubleJackD wrote: »

ITs have higher total costs once you pay for the things that are bundled into UT pricing. I disagree with this.

So that we understand better, could you give a breakdown of the costs, both initial and ongoing, to buy an IT against the same costs to buy a UT?

To make it fair please either price both under advice through an IFA or both via DIY.

doubleJackD

jem16 wrote: »

So that we understand better, could you give a breakdown of the costs, both initial and ongoing, to buy an IT against the same costs to buy a UT?

To make it fair please either price both under advice through an IFA or both via DIY.

ahhh, my new fried mars bar eating friend. you did ask a very interesting question, but perhaps a more interesting question would be:

"ITs have been shown to beat UTs down in virtually every sector over most time frames, so why did IFAs insist (over the last decades) on selling their "low knowledge" clients UTs instead of ITs?"

I put it forward to the forum that the fact that UTs paid commission (and ITs did not) was a major reason.

To answer your question.

Unlike unit trusts investment trusts are very cheap to buy. Since they do not pay commission to middlemen you do not lose 5% or 6% of your investment in up-front fees, as you do with unit trusts. This is an excellent deal for private investors. Instead, buying charges are often as little as 0.5%, or even a flat £10 or so. You may, however, have to pay a small annual fee of around £25 or higher for an Isa wrapper for your fund.

Read more: http://www.thisismoney.co.uk/money/investing/article-1583988/Investment-trusts.html#ixzz24p4hBxbd

jem16

doubleJackD wrote: »

To answer your question.

Unlike unit trusts investment trusts are very cheap to buy. Since they do not pay commission to middlemen you do not lose 5% or 6% of your investment in up-front fees, as you do with unit trusts. This is an excellent deal for private investors. Instead, buying charges are often as little as 0.5%, or even a flat £10 or so. You may, however, have to pay a small annual fee of around £25 or higher for an Isa wrapper for your fund.

Read more: http://www.thisismoney.co.uk/money/investing/article-1583988/Investment-trusts.html#ixzz24p4hBxbd

You've not answered my question.

I asked for a breakdown of charges both initial and ongoing, with both either DIY or advised.

dunstonh

Perhaps you could tell me what things have not been said that I'm asking evidence for... Or if you can't stop mentioning it.....

You twisted something Jem said in an earlier post and in post #43 you said: "why don't you show your command of the investment world by posting a link that shows "factual" proof that every single IT is higher risk than every single UT..... "

No-one has made any such claim. So, no evidence to that effect can be provided as that is not true.

"ITs have been shown to beat UTs down in virtually every sector over most time frames, so why did IFAs insist (over the last decades) on selling their "low knowledge" clients UTs instead of ITs?"

I put it forward to the forum that the fact that UTs paid commission (and ITs did not) was a major reason.

Outside of remit would be most common reason. Second reason has already been covered on this thread. UTs bundled the charges previously. ITs required them to be added on top. When you put the two together on a like for like basis then there is little or no difference or OEICS can actually be cheaper. 3rd reason is that they are considered to be a more complex product than OEICs and the average advice client is lower knowledge (although that appears to be the same for some DIY investors who buy these). 4th reason is that the IT is typically higher risk than the equivalent UT due to gearing and supply/demand pricing.

Instead, buying charges are often as little as 0.5%, or even a flat £10 or so. You may, however, have to pay a small annual fee of around £25 or higher for an Isa wrapper for your fund.

So, if we take a clean UT/OEIC to compare on a like for like basis, there would be no initial charge and typically no fee for holding inside an ISA and no dealing charges. OEIC charges can be as little as 0.1%. pa.

jamesd

doubleJackD wrote: »

have higher total costs once you pay for the things that are bundled into UT pricing. I disagree with this.

Which of these component parts do you disagree with:

1. The FT story saying that ITs have AMCs that are 0.63% lower than UTs.
2. That the UT price includes 0.5% for advice.
3. That you can by both UTs and Its with or without advice and pay or not pay this 0.5%.
4. That the UT price includes 0.25% to 0.3% for a platform charge that is not included in the IT price.
5. That the IT price doesn't include dealing charges while the UT platform price often does.
5. That 0.5% + 0.25% = 0.75%.
6. That 0.75% is greater than 0.63% so the amount that the UT itself is getting is less than the IT itself is getting.
7. That if you pay the same 0.75% for the same services on top of the 0.63% lower IT price, the total cost for the IT is higher.

doubleJackD wrote: »

ITs performance in studies is more greatly affected by survivorship bias than UT performance. I disagree with this

You may disagree wit it but the FT story did have this text: "Survival of the fittest is stronger in the investment trust sector". Survival of the fittest is what survivorship bias is - the bad ones getting closed down, merged or replaced.

It is not a bad thing to have a higher survivorship bias, it means that the sector is doing what it should, getting rid of the losers.