155000 to invest

doubleJackD

jamesd wrote: »

Which of these component parts do you disagree with:

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.

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.

but you don't need to pay any platform money at all to buy an IT and have it as a certificate.....

UTs can charge up to 6% initial fees.... An IT will charge nowhere near that.....

The AMC is only part of the annual fees....

So the FT quotes from a firm of IFAs that sells UTs, and that's considered evidencethat there is more survivorship bias in ITs.... The oldest IT is about 150 years old... what is the oldest UT.....

The FT wrote the article below.

So given the choice between an IT and a UT why would anyone pick a UT.....

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [EMAIL="ftsales.support@ft.com"]ftsales.support@ft.com[/EMAIL] to buy additional rights. http://www.ft.com/cms/s/0/55c29ee4-563a-11e1-8dfa-00144feabdc0.html#ixzz24puDkthB

Open and closed case for fund investors

By Elaine Moore


Investment trusts have outperformed unit trusts in almost every sector over the past decade, according to a new analysis of the returns from these different types of managed funds.
Since the end of 2001, investment trusts have also provided better returns than benchmark indices in seven of the nine regional sectors studied by Collins Stewart.

By contrast, open-ended funds – which include unit trusts and open-ended investment companies (Oeics) – underperformed their benchmarks in every sector analysed.

So given the choice between an IT and a UT why would anyone pick a UT..... outperformance or underperfomance.... not a hard choice....

jamesd

doubleJackD wrote: »

but you don't need to pay any platform money at all to buy an IT and have it as a certificate.....

And you don't need to pay a platform charge for all unit trusts either. But if you use one you'll pay somehow, whether it's for a UT or an IT.

doubleJackD wrote: »

UTs can charge up to 6% initial fees.... An IT will charge nowhere near that.....

And I can send you an invoice for £100 for my posts but that doesn't mean you're going to be foolish and pay me.

If you want to buy the service, for either, you're going to have to pay. It'll be bundled or explicit but you are going to end up paying somehow.

Now you just have to decide which services you want to buy.

doubleJackD wrote: »

The AMC is only part of the annual fees....

Right. Both ITs and UTs have those extra costs. IT's don't get a special no share buying charges or no Stamp Duty deal.

doubleJackD wrote: »

So the FT quotes from a firm of IFAs that sells UTs, and that's considered evidencethat there is more survivorship bias in ITs

Why are you writing as though survivorship bias is a bad thing? It's not, it's good, it means the market is getting rid of the under-performers. It just makes studies harder to get right. That's sad but we're still better off without those under-performers in the market.

doubleJackD wrote: »

The FT wrote the article below.

Yes, that's the one I gave the link to earlier. Notice again that the performance figures for the UTs include the bundled services but the ones for the ITs don't, you pay those separately but they are ignored in the studies. It's the most common deficiency in studies comparing UTs and ITs.

doubleJackD

jamesd wrote: »

And you don't need to pay a platform charge for all unit trusts either. But if you use one you'll pay somehow, whether it's for a UT or an IT.

And I can send you an invoice for £100 for my posts but that doesn't mean you're going to be foolish and pay me.

If you want to buy the service, for either, you're going to have to pay. It'll be bundled or explicit but you are going to end up paying somehow.

Now you just have to decide which services you want to buy.

Right. Both ITs and UTs have those extra costs. IT's don't get a special no share buying charges or no Stamp Duty deal.

Why are you writing as though survivorship bias is a bad thing? It's not, it's good, it means the market is getting rid of the under-performers. It just makes studies harder to get right. That's sad but we're still better off without those under-performers in the market.

Yes, that's the one I gave the link to earlier. Notice again that the performance figures for the UTs include the bundled services but the ones for the ITs don't, you pay those separately but they are ignored in the studies. It's the most common deficiency in studies comparing UTs and ITs.

you obviously believe ITs are more expensive than UTs, do you have any third party evidence to support this viewpoint? tbh, all this ignoring some costs for no real reason doesn't seem that convincing.

survivorship bias is bad beacause it misleads consumers into believing managed funds do better than they actually do.

Any fund management company can start 100 different funds, just so that some will be in the top quartile..... there must be 8 pages of funds in each weekend FT, and only two pages of share prices.....

dunstonh

UTs can charge up to 6% initial fees.... An IT will charge nowhere near that.....

Wrong. You are not comparing like for like.

Investment trusts have outperformed unit trusts in almost every sector over the past decade, according to a new analysis of the returns from these different types of managed funds.

And that is to be expected. Historically, the more risk you take the better the returns.

jem16

doubleJackD wrote: »

you obviously believe ITs are more expensive than UTs, do you have any third party evidence to support this viewpoint? tbh, all this ignoring some costs for no real reason doesn't seem that convincing.

UTs have, historically, been marketed in bundled form. This includes the fund charge, the platform charge and the IFA charge.

ITs have, historically, been marketed in unbundled form - ie no platform charge/dealing charge and no IFA charge.

So for an average UT with an average 1.5% amc, it was made up of 3 parts - fund charge, platform charge and IFA charge. Some platforms/discount brokers rebated part of these charges if not using an IFA. This varied from a rebate of 0.25% to 0.5% which was really just a rebate of part or all of the IFA fee. The platform/broker fee was being kept.

This gives you an idea of how the average fund was broken down.

http://www.cavendishonline.co.uk/investments/our-service/

So from that you will see that the fund provider in this example actually gets 0.75% amc.

Now, typically, all the fund performance information on Trustnet would assume the 1.5% amc was being used which would provide figures that were not realsitic for those using a DIY service such as Cavendish as they were not actually paying 1.5% amc but 1% amc. It also assumes an initial charge of 5% which again is avoided using Cavendish.

Here is the fund information on Trustnet. Note that it assumes an initial charge of 5% and an amc of 1.5%.

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=PPHI&univ=U

Now the average amc of an IT is 0.8%. When you look at performance figures only the amc is used with no inclusion for any platform fee/dealing charge/IFA charge. So immediately you have data that does not compare like with like.

Have a look here;

http://www.iii.co.uk/investing/investment-trusts/top-10

Now, going forward, with the introduction of RDR and the Platform Review, all investments will be charged explicitly. So no matter what the investment, you will pay the same for each service should you choose to use it. So if you use a platform you will pay the platform fee regardless of UT or IT. If you use an IFA you will pay the IFA fee regardless of UT or IT. The only thing that will be different is the actual cost of the UT or IT so the only fair charge to compare is the amc or ter.

The likes of Alliance Trust Savings and Interactive Investor have already introduced some/most of their compliant charges. I'm sure you ahve seen the uproar on recent threads.

However if you look at ATS's fund list - ie UTs/OEICs - you will see that the amc is on average 1.5% and the annual rebate is 0.75%, thus leaving an average explicit amc of 0.75%. Of course you can find UTs with an amc of 0.15% if you look.

http://www.alliancetrustsavings.co.uk/pdf/list-of-funds.pdf

So basically an average 0.75% amc for UTs and an average 0.8% amc for ITs, both on a DIY basis. If you choose to pay for a platform service or IFA service, you will pay the same fees for UTs and ITs.

What is important here is to look beyond the headlines and instead pick out and understand the advantages/disadvantages. Then you can make an informed decision based on your investment strategy.

I aoplogise in advance for the length of the post, but I wanted to be thorough regarding charges and their effect on performance tables.

doubleJackD

dunstonh wrote: »

Wrong. You are not comparing like for like.

And that is to be expected. Historically, the more risk you take the better the returns.

ehhhmmm so you're saying that no Unit Trust has ever charged a 6% initial fee? I can assure you the last time I bought an IT I paid less than 6%...

i just think it's funny that most people consider buying an asset like a house (on credit/ that might go down in value) is a sensible thing to do. Yet investing a couple of grand in an investment trust (which might have gearing/ might drop in value) is a crazy stupid thing to do.



To pre empt the "you need somewhere to stay argument", well yes people do need somewhere to stay, but they also need an income when they stop working...

doubleJackD

jem16 wrote: »

I apologise for the length of the post, but I wanted to be thorough regarding charges and their effect on performance tables.

with respect I have given references that say that ITs are cheaper than UTs in posts 52 and 58. perhaps you could provide a reference to back your assertion that ITs are more expensive.

All this, "well if you ignore this cost and take this figure away from that one UTs are cheaper" is poor evidence in my opinion.

UTs are one of the biggest advertisers in the UK, if they are cheaper than ITs they would be singing it from the rooftops.

Some more evidence for you:

http://www.fool.co.uk/Your-Money/guides/Investment-Trusts.aspx

"Overall, given their lower costs, here at the Fool we generally prefer investment trusts over their unit trust and OEIC cousins."

dunstonh

ehhhmmm so you're saying that no Unit Trust has ever charged a 6% initial fee? I can assure you the last time I bought an IT I paid less than 6%...

On a like for like basis then 6% would be charged on the IT as well if that was the case. A typical OEIC has no initial charge and if it is a managed fund then it has an AMC of around 0.75% in clean priced form. Any initial charge that exists is added by the retailer/adviser to cover retail/advice. The same charge would exist on ITs too. Part of the point of RDR and platform review is to equalise the costs irrespective of investment universe. The RDR and platform review will see the cost differences between ITs and UTs largely vanish and indeed, many UT/OEICS will be cheaper. Just as we have seen tracker OEICS come in cheaper than ETFs.

i just think it's funny that most people consider buying an asset like a house (on credit/ that might go down in value) is a sensible thing to do. Yet investing a couple of grand in an investment trust (which might have gearing/ might drop in value) is a crazy stupid thing to do.

Not sure what you are talking about there.

with respect I have given references that say that ITs are cheaper than UTs in posts 52 and 58. perhaps you could provide a reference to back your assertion that ITs are more expensive.

And multiple answers have been given which show you are out-of-date and not comparing like for like.

All this, "well if you ignore this cost and take this figure away from that one UTs are cheaper" is poor evidence in my opinion.

It is you that is choosing to compare unbundled IT pricing against bundled UT pricing. We are saying you should compare like for like otherwise you end up with a biased opinion.

http://www.fool.co.uk/Your-Money/gui...nt-Trusts.aspx

"Overall, given their lower costs, here at the Fool we generally prefer investment trusts over their unit trust and OEIC cousins."

March 2010 - out-of-date information. If Fool like them that much then why do they sell UT's to their customers?

Aegis

doubleJackD wrote: »

ehhhmmm so you're saying that no Unit Trust has ever charged a 6% initial fee? I can assure you the last time I bought an IT I paid less than 6%...

Although it's been said before, I think it's worth repeating because you still seem to be missing a really important point here, namely that UTs and ITs charge on completely different bases, i.e. UTs assume that advice is included in the cost while ITs don't. To give an indication of what this means, let's assume that an expensive IFA takes the full 5% initial commission available on a unit trust, together with the 0.5% trail:

UT Costs (5%/0.5%)

Initial fee: 5%
Annual Fee: 1.5% (let's ignore additional expenses for the moment and assume that they're broadly equivalent between UTs and ITs)

IT Costs (on an equivalent charging structure)

Bid/Offer Spread: say, 1%
Transactional Costs: £25 (i.e. one real time purchase and disposal)
Standard AMC: c0.8% (i.e. 0.7% lower than a standard 1.5% - just an estimate)

Initial advice cost: 5%
Ongoing advice cost: 0.5%

TOTAL Initial: 6% + £25
TOTAL Ongoing costs: 1.3% (excluding any platform fees)


In other words, if you include like for like advice costs, the difference in price becomes much less significant. This is likely to be even more pronounced post RDR, when clean pricing on UTs/OEICs becomes a requirement rather than just an option, as execution only clients will be able to see the stripped down price of their UT holdings.

jem16

doubleJackD wrote: »

with respect I have given references that say that ITs are cheaper than UTs in posts 52 and 58. perhaps you could provide a reference to back your assertion that ITs are more expensive.

Why would you prefer an out of date reference to the charging structure of UTs when I have given you an up to date link of the current charging structure through Alliance Trust Savings?

I have also given you links that explain how bundled charging works and yet you dismiss that for "references" that simply make a headline.

You have also been shown how you are mixing advice purchases with DIY purchases.

As you are not happy with taking one figure away from another, do look at the charges for another unbundled platform. Note the first two columns that clearly state "Explicit amc" and "Explicit ter". Clean charges for UTs starting from 0.1%.

https://dl.dropbox.com/u/34854779/ElevateAdviserFundsGuideJuly2012_finalwebversion.pdf