Difficulty Getting Advice on Investment Trusts

phuket

In a previous thread I posted about generating income from a lump sum and several respondents suggested using investment trusts.

This seems like a sensible suggestion and having done some background reading I would like to get advice on this, however after approaching 3 different IFAs in my area I have been unable to find anyone who is willing to give advice.

- Is this usual? Has anyone managed to get IFA advice on ITs?

- Are ITs still a sensible investment, given future changes to fees for unit trusts and OEICs?

Thank you.

dunstonh

This seems like a sensible suggestion and having done some background reading I would like to get advice on this, however after approaching 3 different IFAs in my area I have been unable to find anyone who is willing to give advice.

Previously, investment trusts fell under stockbroker authorisations but more recently the FSA combined IFA and stockbroker authorisations and has said from Jan 2013 that IFAs will be able to give advice on investment trusts. The position is that we are able to do so now. However, compliance companies and PI insurers may not have opened up to allow it yet with those advisers.

I have been able to do ITs for a little while now and havent yet found the need. Typically, you have to compensate for the higher risk and that means drawing back on other areas. Plus, as there is no longer any cost difference (on unbundled pricing) the charges are no longer an argument. There are a few ITs I have my eye on and may use with my more experienced investors going forward but I doubt I will move to ITs for someone with no investing history unless they can show me that they have the ability to understand both the negatives and the positives. It is easy to understand positives but it is the negatives that matter as much.

gadgetmind

You could try the Motley Fool forums and in particular the "Investment Trusts and Units Trusts" board.

http://boards.fool.co.uk/investment-trusts-unit-trusts-50097.aspx?sort=collapsed

Expect to do a lot of reading, and experience a fair few differing views, but many people there have been investing for income for several decades without ever going near an IFA or a Unit Trust.

Sadly anything with the word "income" in the title is currently on a premium, so take care.

You might also find discussions on bank prefs on the Banking Sector board interesting, but be aware of the need to diversify widely.

jamesd

ITs are still sensible provided you want either the leverage or manager view and potential performance of a specific IT. Don't pick it just because it's an IT or UT, pick it because of what it's delivering to you. Then look at cost as part of that picture - it comes after performance.

The coming changes will make it easier to compare IT and UT performance without the handicap that UTs currently have of having some platform and IFA charges included and dropping their performance figures.

I don't currently use any ITs but I will be switching at least one portion of my money to the IT version of a UT that I already hold. That's a UK smaller companies UT/IT. I'm also keeping an eye out for other potentially interesting ones.

It'll probably still be a little hard to get good IT advice from an IFA just because it's a relatively new area for them and quite a few may not be as familiar with them as they would like before advising people to use them.

gadgetmind

I will be switching at least one portion of my money to the IT version of a UT that I already hold.

Presumably because the IT has similar holdings but is on a discount?

I've done rather well in the last 6-8 months from buying good ITs operating in unloved areas (property, Europe, and even property in Europe!) that were on high discounts and waiting for them to narrow.

Of course, you do need to be prepared to wait a long time, but three of the four have now been flogged.

BLB53

IFAs are not yet up to speed on ITs as most recommend funds which pay them commission and ITs do not pay commission.

However, its not so difficult to select a few income ITs - ones I hold are City of London, Murray International, Dunedin, British Assets, Temple Bar, Aberforth Smaller Companies and Murray Income - also Blackrock Commodities Income and a couple of commercial property trusts.

For a step by step guide, I recommend download a v good ebook 'Slow & Steady Steps...'

http://www.amazon.co.uk/Slow-Steady-Steps-Wealth-ebook/dp/B007EBLN3G/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1347549332&sr=1-1

Also have a look at some of the articles on Monevator.

Good luck!

jamesd

gadgetmind wrote: »

Presumably because the IT has similar holdings but is on a discount?

Similar holdings but more concentrated and with leverage. It's non-urgent so I haven't been watching discounts but UK smaller companies has done well recently so it might be at a premium, not discount.

I'm happy to use leverage when I think it's worthwhile, my limited amount of FTSE tracking is done with a 2X leveraged ETF, in part so I get the holding value but have more money free for other things. It tracks well enough in spite of the leverage.

gadgetmind wrote: »

I've done rather well in the last 6-8 months from buying good ITs operating in unloved areas (property, Europe, and even property in Europe!) that were on high discounts and waiting for them to narrow.

Good plan!

gadgetmind

jamesd wrote: »

UK smaller companies has done well recently so it might be at a premium, not discount.

Aberforth is on a 15% discount and has a reputation for being steady during the bad times. Standard Life is on a 3.5% discount and Dunedin 9%.

The globals such as Blackrock and F&C are also on discounts, though the latter not much of one.

Interestingly, Aberdeen Smaller Companies High Income is on an 18% discount despite the magic "income" word.

I must admit to poking around this area, sticking a load of these on my watch list, and then buying a global small cap tracker ...

dunstonh

IFAs are not yet up to speed on ITs as most recommend funds which pay them commission and ITs do not pay commission.

Unbundling of remuneration takes away that issue.

I would say the biggest issue that the moment is due diligence and the research companies finding it hard to get responses from the trusts. There is less data published on ITs and as they are not covered by the FSCS (an issue that fits in with suitability with lower knowledge investors. i.e. if you recommend non FSCS protected investments and they go bad then the FOS are almost certainly going top rule against the adviser) you have to rely on information supplied and the research companies have had some very poor quality returns to their questions from some trusts.

3 of the trusts you listed have passed our due diligence but those three are all high risk. You tend to find the average income investor is more cautious in risk. As part of a balanced portfolio averaged out to risk that may not be an issue. Or the OP may be a higher risk investor. However, the point is to highlight that IFAs have a duty of care and things that a DIY investor doesnt give two hoots about can influence the recommendation.

gadgetmind

dunstonh wrote: »

research companies finding it hard to get responses from the trusts.

Research companies want to be given everything on a plate before going off for a three martini lunch IME.

3 of the trusts you listed have passed our due diligence but those three are all high risk. You tend to find the average income investor is more cautious in risk.

I was classed as cautious based on the questionnaires but probably don't fit that category now that I actually know what "risk" means in this context.

And if a blue chip income trust that's been delivering the goods since before our grandfathers were born can be classed as "high risk" then I suggest that misunderstanding of the term is widespread.

gadgetmind

jamesd wrote: »

Good plan!

Gains (inc divis) on the three sold so far are 20%, 14% and 25%. The one that's "only" up 14% is more of a long term hold. (In all honesty, they were all of intended to be thus!)

I have very mixed feelings regards IFAs starting to recommend ITs. I can see it helping to narrow discounts over the short/medium term (which is leading me to "lie in wait" for the hot money) but TBH I'm more happy that this fly-by-night investing be sloshing around in the equally ephemeral Unit Trusts that seem to keep popping up like the dandelions on my lawns.

And yes, my recent "in and out for a quick buck" does put me in the hot money camp, but at least I was buying low and selling high unlike many of the other silly sods!