How to choose an investment trust

slopemaster

After seeing a couple of posts on here, I was thinking of putting some money into an investment trust (set up as a bare trust for my 7-yr-old granddaughter).It will only be £25/month for now, but I might be able to put more in later on.

Thing is, I have no real clue what criteria I should use to choose the investment trust?
Can anyone help please?

Linton

Some criteria
1) Do you believe that what it invests in will provide a reasonable return long term. Some ITs are very broad others are highly focussed. If you are looking to only invest in one IT it should be broad in its scope. Even then two would be better than one once your bare trust has reached a reasonable size.
2) Past performance in terms of returns and the volatility of the returns. Though of course this is no guarantee.
3) Size and standing in the market. Some ITs are large, been running for many many years and have built up an excellent reputation, others havent.
4) Charges

Rollinghome

slopemaster wrote: »

It will only be £25/month for now, but I might be able to put more in later on.

For that sort of sum, high on your priorities will be a low cost savings plan of some sort otherwise dealing fees will take a silly proportion of your investment. A look at www.fandc.com might be somewhere to start.

Glen_Clark

I also look at the discount - that is the price of the shares compared to the price of the assets in the trust. Many trade at up to 30% less than the value of the assets in the fund - an embarrassment to the management because it is a reflection of their value to the company - they are perceived as a liability.
But if you get a good discount at least you know they are a liability that is already priced into the shares.
One thing to be careful of is that if the trust invests only in shares and bonds which are quoted on the stock exchange, the net asset value can be calculated daily. If they invest in Private Equity, or Property, the valuation is much more ambiguous, and updated much less often.

xylophone

http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/
There is an example here ( if you haven't seen it already).


http://www.thisismoney.co.uk/money/saving/article-1604866/Investment-trusts-for-children.html This is old but might be worth a look.

http://citywire.co.uk/new-model-adviser/aic-investing-for-children-with-investment-trusts/a555645

Check the charges before investing.

Reaper

I agree with the posts above, though discounts are of more interest for a short term speculative boost for those with a lump sum, and of less interest for those drip feeding in for the long term.

The particular funds I chose for my son were the following:

Scottish Mortgage (nothing to do with mortgages!)
F&C Investment Trust (this one I did as a CTF but you there should be no problem doing it as a Bare Trust instead)

What appealed to me with these was:
* Long history
* Very low charges
* Can easily switch to other funds from the same provider
* Good track record
* Managers have the freedom to invest almost anywhere they want. Compare that to, say, a China fund where the manager has to keep investing in China even if he thinks it is headed for a fall.

Glen_Clark

Reaper wrote: »

I agree with the posts above, though discounts are of more interest for a short term speculative boost for those with a lump sum, and of less interest for those drip feeding in for the long term.

The particular funds I chose for my son were the following:

Scottish Mortgage (nothing to do with mortgages!)
F&C Investment Trust (this one I did as a CTF but you there should be no problem doing it as a Bare Trust instead)

What appealed to me with these was:
* Long history
* Very low charges
* Can easily switch to other funds from the same provider
* Good track record
* Managers have the freedom to invest almost anywhere they want. Compare that to, say, a China fund where the manager has to keep investing in China even if he thinks it is headed for a fall.

I hold a little in Foreign & Colonial.
Only thing I don't like is they obviously spend a lot of money running Private Investor Plans etc. Presumably is suits the management to have a lot of small investors buying to reduce the embarrassing discount, and small investors are less likely to turn up at the Head Office and question the management. All this is obviously being paid for by investors. I don't know if these administration costs are included in the charges they quote?
I have read where the charges quoted by some other funds are just the tip of the iceberg.

Daniel_Elkington

Don't set up a bare trust, trusts pay tax as additional rate taxpayers - put that £25 pcm in ISA in your name. Retain control as you don't know who she is going to grow up into.

Get a share trade account like sharecentre (others are available -shop around) and buy units in things through that.

Don't listen to posters recommending single funds in 2-3 paragraphs, it takes years to actually work out who will pay well and whether the discount is worth it (or whether it is worth paying a premium to buy into an IT).

Cost isn't everything - Porsche is better than Vauxhall, costs more too!

I'd suggest looking into Unit Trusts or OEIC's first - these have much better liquidity and can get you used to the markets and get a feel for the ones that you like. You can then start to do some research on buying stocks and being able to value stocks appropriately.

If you buy an Investment Trust you are effectively buying shares in a company that invests in other companies - it is little different to buying shares in Aviva or GSK - both own a number of subsidiaries which boost the parent groups' profits. The difference is that Aviva and GSK actually make money themselves.

I congratulate you on wanting to actually invest properly for the future, however I would urge caution and urge that you try the more 'vanilla' style of investing first just to get an idea of how things work.

Also with sharecentre you get a practise account, so you could pay into the safer thing with the £25 and have a play around with the practise bit - see if the advice given here actually pans out.

Reaper

Daniel_Elkington wrote: »

Don't set up a bare trust, trusts pay tax as additional rate taxpayers

Sorry but that is rubbish. They are investing money for a grandchild. That means the investment will be taxed as if the child owns it. Even the parental £100 rule does not apply.

So unless the child is in the unlikely position of being a taxpayer there will be no tax at all to pay on the investment.

Your ISA idea is a fair one but not if they have already used up their allowances on themselves or are worried about inheritance tax - the child would be much better off with a Bare Trust if that is a concern. They would also have to change their will to make sure the child did inherit the money if they died before she came of age, again that is not a problem with a Bare Trust as the child owns it as soon as the money is contributed.

grey_gym_sock

buying an old, generalist investment trust or 2 is exactly what i'd call 'vanilla' style investment in shares.

as Reaper says, income in a bare trust will be taxed as the grandchild's income (and they have a full personal allowance). some other kinds of trust are taxed at the equivalent of additional rate.

rpc

Reaper wrote: »

Sorry but that is rubbish. They are investing money for a grandchild. That means the investment will be taxed as if the child owns it. Even the parental £100 rule does not apply.

Methinks he has confused bare trust with discretionary trust - the latter pays top rate tax which the beneficiary has to reclaim.

Bare trust is the property of the beneficiary and taxed as such unless the £100 rule applies.