Investment trusts - pointless?

Porcupine

I've been looking at diversifying away from the usual fare of unit trusts, and investment trusts seemed the obvious next step.

But is it me, or do I not quite see the point? In a post-RDR world where a managed unit trust costs 1% not 1.5% AMC, an investment trust is no cheaper. Plus they're closed ended - that means you can get them at a discount to NAV, but for every buyer getting a discount there's a seller making a loss. And the good ones are at a premium to NAV. And then there's dealing fees on top.

Popular unit trusts can have high cash inflows which act as a drag on performance, but not quite in the same way as a premium to NAV. And you rarely have to pay deal fees.

So am I missing something vital here, or investment trusts suddenly not such good value?

grey_gym_sock

i do think ITs' cost advantage has been eroded.

i'd always want to use a close-ended structure for any kind of illiquid investment. as with an open-ended fund, redemptions may be suspended when a lot of ppl want to redeem units. or they have to sell their most liquid assets, whether or not it makes sense. or they just have to keep a large cash balance to prevent that happening.

currently, there are a lot of ITs on a premium, which puts me off, too. there may be better times to buy in.

Glen_Clark

I've done very well out of investment trusts using a simple strategy.
Only buy those at a large discount so the management are a liability that is already priced into the shares.
You do have to be careful here though. Valuations in some trusts, like Private Equity, are only arbitrary, and maybe done on an annual basis, so you are always looking at at current share price set against an old valuation.

BLB53

RDR should, as you say, create more of a level playing field between the two, however the costs for ITs could fall as they become listed on the major IFA platforms so its not clear cut.

Also, do not be misled by the headline figure of 1.5% for funds - they generally have a higher hidden fees such as portfolio turnover rate which will typically add a further 1% to the costs.

FWIW, I believe the average IT should continue to provide a better return than the average fund. Only time will tell.

melbury

This is probably a really stupid question but, how can you tell if an investment trust is trading at a discount? Is there some easy indicator?

Many thanks.

BTW I have some shares in the Perpetual Income & Growth Investment Trust, which I have just looked up on the London Stock Exchange site and I still haven't got a clue whether they are trading at a premium or discount:o

Reaper

melbury wrote: »

This is probably a really stupid question but, how can you tell if an investment trust is trading at a discount? Is there some easy indicator?

Try looking them up here:
http://www.theaic.co.uk/aic/find-investment-company

BTW I have some shares in the Perpetual Income & Growth Investment Trust, which I have just looked up on the London Stock Exchange site and I still haven't got a clue whether they are trading at a premium or discount:o

According to that site they are currently on a small discount of 1.6%

dunstonh

RDR should, as you say, create more of a level playing field between the two, however the costs for ITs could fall as they become listed on the major IFA platforms so its not clear cut.

Don't expect iFAs to go IT crazy. They are still classed as being more suitable for a more experienced investor and typically more volatile pushing them further up the risk scale on a like for like basis with OEICs. With the FOS generally considering the average consumer as being relatively cautious and typically stupid unless proven otherwise (my words, not theirs), IFAs have to be careful that not only the risk level is right but the capability to understand and ITs are still generally a notch higher than OEICs in that respect.

The DIY market may actually see a greater move to ITs when everything is unbundled. DIY consumers tend to invest above their risk profile and follow fashion investing. ITs could be right up their alley. (generalisation alert acknowledged )

jimjames

ITs are still far better suited for illiquid investments and also can use gearing which unit trusts cannot do. Even for liquid investments I think there are advantages for the manager to not be having to deal with an influx of new money and can plan their holdings on a more long term basis knowing the pot of money they have available.

On the whole an IT should be run for the benefit of its shareholders (the investors) whereas a UT is run to make profits for its management company.

JohnRo

jimjames wrote: »

On the whole an IT should be run for the benefit of its shareholders (the investors) whereas a UT is run to make profits for its management company.

That sounds like hyperbole to me, I very much doubt IT managers are any less in it for themselves than UT managers are. They're both playing with others money for the most part and being rewarded for their efforts regardless.

benalder284

There has certainly been more cases in recent months of IT Boards ditching or switching investment managers which would support the idea that IT shareholders interests are given more attention that in OEICS/UTs - can't recall any poorly performing UT managers voting to move the mandate to another firm

atush

melbury wrote: »

This is probably a really stupid question but, how can you tell if an investment trust is trading at a discount? Is there some easy indicator?

Many thanks.

BTW I have some shares in the Perpetual Income & Growth Investment Trust, which I have just looked up on the London Stock Exchange site and I still haven't got a clue whether they are trading at a premium or discount:o

I hold that one too, and invest monthly. Unlike many, they take from 20 quid per month.