How to choose an investment trust

atush

I think a good general IT is ideal for the OPs situation, and did so myself over a decade ago for my 3 boys.

Look at good generals like F&C, and Witan (newish manager seems to be making strides) and invesco perpetual.

A savings plan direct is the way to go, with low fees/costs. But do look at the annual charges re: the amt invested as some like Witan have changed their Jump plans (bare tursts for kids) from charges per amt invested to annual fees (to incluse all charges not matter how much you invest) and this can make those plans expensive for lower amts such as 25/m.

grey_gym_sock

yes, i'd definitely avoid UTs/OEICs if they're going to be investing in anything but very liquid assets.

if it's only investing in very liquid assets, it's more finely balanced between ITs and UTs/OEICs. in this case, if all other things are equal, an IT will be riskier because of the fluctuation of the discount. however, all other things are very rarely equal .

snowcat53

grey_gym_sock wrote: »

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

Agree 100%, and a simple IT like F&C sounds ideal for the OP. This is not a racy high risk investment! I'm afraid some poster like to overcomplicate.

And I think the 'Porche v Vauxhall' metaphor is seriously misleading in looking at fees for investments.

Rollinghome

Daniel_Elkington wrote: »

The NAV of a company can be based on several things and a tiny piece of news can affect a single company drastically....Additionally with an OEIC/UT the investor can sell units whenever they like.

Daniel, your comments give the impression that you have very little experience of investment trusts and more than likely have never personally invested in any. There are people on this board who have invested in ITs for 40 years or more and have no difficulty in spotting when someone doesn't really know what he's talking about.

You seem to be under the impression that ITs are invariably racy and complicated, perhaps based on what you've heard about some split capital funds before regulatory changes.

In reality, the level of risk tends to depend more on the nature of the fund, where and how it's invested, and whether it uses gearing, rather than just whether it's a unit trust or investment trust.

For example, long established global ITs such as Alliance and F&C (established in 1868) clearly carry less risk and are easier to understand than UT/OEICs such as the Arch Cru funds that were mistakenly sold by financial advisers as "cautious managed" without really understanding them. (As you'll know, Arch Cru were were subsequently shut down by the FSA leaving some investors still waiting for compensation).

As holders of some unit trust property funds found out not long ago, it may not always be possible to sell unit trust investments at certain times, and when they can, they won't normally know the sale price until after the sale due to "forward pricing". Conversely, ITs and REITs can be sold at any time the markets are open at a pre-agreed price.

What this suggests to me is that IFAs like yourself need to do a good deal of catching up if you're going to be up to speed by 31 Dec this year when commission payments are ended and you'll be expected to give advice on more that just unit trusts.

Otherwise some clients are likely to receive some very ill-informed advice for their fees. Trying to just bluff your way through based on what what you've heard somewhere but without any experience won't be good enough.

jimjames

Rollinghome wrote: »

What this suggests to me is that IFAs like yourself need to do a good deal of catching up if you're going to be up to speed by 31 Dec this year when commission payments are ended and you'll be expected to give advice on more that just unit trusts.

I've always considered ITs to be one of the hidden gems of the investment world so it's a shame that just as IFAs will start to cover and consider ITs as an investment class that the benefits of investment trusts from a cost perspective are starting to be eroded. Over the last few years where discount brokers have rebated part of the AMC for UT/OIECs the difference between AMC for IT vs UT has become less whereas previously the IT had a generally lower charge structure.

Obviously the other benefits of an IT as you have outlined above are still in place but private investors have long missed out on being advised of these advantages.

Rollinghome

jimjames wrote: »

Over the last few years where discount brokers have rebated part of the AMC for UT/OIECs the difference between AMC for IT vs UT has become less whereas previously the IT had a generally lower charge structure.

Obviously the other benefits of an IT as you have outlined above are still in place but private investors have long missed out on being advised of these advantages.

Yes, would agree the calculations are constantly changing.

While the cost of buying both UTs and ITs has come down, at least partly due to computerisation, management fees for both have trended upwards and we now have the highest management fees in the world. Whereas in the US, it's the practice to pass on the benefits of scale as funds get bigger by reducing management fees, here managers do the opposite and actually increase their fees when funds become popular.

Was a time when it was almost impossible to avoid a 5-6% initial charge on UTs let alone the annual trail commission. At the same time brokers fees to buy and then sell ITs were typically 1.5% or more in addition to the spread. It was another reason why the new low cost tracker funds with a close to 0% initial charge and AMCs around 0.5% were seen as such a bargain.

Will be interesting to see how it all pans out with the ending of trail commission this year and platform commission the year after. There have been some suggestions that RDR will also cause downward pressure on AMCs but I'll want more evidence of that.

ITs will continue to have advantages and their greater efficiency should continue to allow them to outperform. But as always, investors will need to look at ITs, index trackers, and managed UTs in the round and judge where the advantage lies for them.

atush

This is an aside for the OP.

i got one of my annual statements from an investment trust that invest in monthly today. It is one in the F&C stable, but a bit more racy than the "plain Vanilla" ones we discussed earlier here. After investing a few generals, I branched out as diversification is key.

This one (Graphite enterprise) which invests in smaller and even private companies, has delivered fairly well over the last ten years I have invested. Up 11+% per year in fact over the last ten. Yes, it did poorly in the downturn as did most shares, but has returned 47% over the last 3. And it is 39% invested in Mainland europe. So, I am pretty happy with this one and will continue to invest in it. Have others done better? Yes. But 11% is ok with me esp considering what my cash is getting these days. The 50 quid I put here a month would have done much worse even int he best cash accts available.

Other investment trusts have varied, but all the facts and figures for each that you might be interested in are available at trustnet.

So go have a look at some of the generals listed here over on trustnet.