Investment trusts - pointless?

gadgetmind

It's interesting to look at those cases where the same manager runs both an IT and a open-ended fund along similar lines. The IT version typically shows strong long term out-performance.

I now use low-fee trackers as a core with a few ITs for the less liquid areas.

Yes, open-ended fund fees are coming down (about time!) but ITs are responded by reducing their own fixed fees and eliminating performance fees.

Glen_Clark

I hold Graphite for some Private Equity exosure. The management take 2% a year in charges, and thats a lot, but its on a 23% discount. So you buy £100 worth of assets for £77. If the discount is still 23% when you sell them you will still only get £77. But, in the meantime, 100% of the earnings are going into the fund, which goes some way to paying the high management charges.
I also feel that if you buy a trust at 23% discount there is a better chance of that discount narrowing, (so you get more when you come to sell) than if you buy a trust on a 23% premium - paying £123 for £100 of assets because the management have had a good run and are temporarily in favour. This years star performer is often next years dud, and vice versa.

Ark_Welder

[devil's advocate mode]

Just to use the example above. If Graphite is trading at a 23% discount, and HICL Infrastructure is on a 14% premium, which is the better investment?

[/devil's advocate mode]

gadgetmind

Ark_Welder wrote: »

Just to use the example above. If Graphite is trading at a 23% discount, and HICL Infrastructure is on a 14% premium, which is the better investment?

I'd go for Graphite. I hold HICL but have no idea why anyone would add at current prices. I only add to HICL (and BBGI etc.) when they do issues of C shares etc.

bigfreddiel

dunstonh wrote: »

They are still classed as being more suitable for a more experienced investor

what exactly is an 'experienced investor'?

surely regardless of your experience you should go for the most efficient and cost effective means to achieve your investment criteria - experience doesn't come into this - risk does - and should be handled accordingly.

fj

jem16

bigfreddiel wrote: »

what exactly is an 'experienced investor'?

surely regardless of your experience you should go for the most efficient and cost effective means to achieve your investment criteria - experience doesn't come into this - risk does - and should be handled accordingly.

fj

The reason behind it - in respect of IFAs recommending them - was already in the post which you partly quoted.

dunstonh wrote: »

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.

gadgetmind

bigfreddiel wrote: »

what exactly is an 'experienced investor'?

One who's read the money section of the Telegraph at least once.

Ark_Welder

Still being a devil's avocado....


HICL or VOD.....?

gadgetmind

Ark_Welder wrote: »

HICL or VOD.....?

I hold both but regard them as playing different roles in my portfolio.

Out of interest, do you think that VOD is the kind of company where looking at price versus net book value tells you much?

For what it's worth, I tend to avoid ITs on a premium as it tells you that their investing style is popular. As I'm the kind of person who changes their mind if they find too many people agreeing with them, I prefer to buy ITs that are investing in unpopular areas and are thus on a high discount to already good value underlying assets.

So, I'm not buying income and growth ITs right now but am looking at EM and resource specialists. Six to twelve months ago, I was more interested in Europe, Property and financial debt.

There is always something that's stinking the place up!

Ark_Welder

gadgetmind wrote: »

I hold both but regard them as playing different roles in my portfolio.

Exactly. And that is why I don't think that the answer to GPE vs. HICL is necessarily clear cut - it depends on each individual's timescales. I see GPE and the rest of the PE sector as an investment to provide a longer-term return, and HICL and the ilk as providing an immediate return. So for me to buy GPE in the hope that it might rise in price enough to sell on a reasonably regular basis to provide income now, is too much of a gamble. On this basis, I see HICL as the better option - for me and this task.

Perhaps PE and infrastructure aren't good examples of discount/premium issues because of their specialist nature. They may be structured as closed-end funds, but the way that some of them operate is closer to that of a regular business. REITs that actively manage their portfolio with the intention of rolling assets over at a profit, being another.

gadgetmind wrote: »

Out of interest, do you think that VOD is the kind of company where looking at price versus net book value tells you much?

It tells me that you looked at it before answering!

If I had a history of VODs NBV then I might look at it to compare whether it is 'expensive' or 'cheap' relative to its own history (I almost used NG. instead of VOD given that it can be thought of as infrastructure. the NBV of that and other utilities can certainly make the eyes water). But even that doesn't provide a guide to its prospects, being historic data. And with some companies, too much can have changed in the meantime. But it might help when comparing against one of its peers.

gadgetmind wrote: »

For what it's worth, I tend to avoid ITs on a premium as it tells you that their investing style is popular.

As I'm the kind of person who changes their mind if they find too many people agreeing with them, I prefer to buy ITs that are investing in unpopular areas and are thus on a high discount to already good value underlying assets.

It was much easier years ago before the advent of discount control! The level of discount in the PE sector now was at times the norm for some generalist sectors.

I think that this is a strategy that works better when a sector is at a premium or discount rather than within a sector. At the sector level, it is an indication of sentiment towards that area. But a single trust at a discount to its peers is usually a signal that something isn't right - which may present a speculative opportunity, in itself, but deeper investigation would be a must.

Avoiding an IT that is at a premium when compared to its peers can also backfire, a case being AAS, as mentioned on another thread: it traded at a premium for around 12 months, moving back to a discount recently. Anyone that waited for the discount to return would have had to pay 50% more than the last time it was at a discount, and the share price total return over that period was better than its peers, either open or closed. So buying into quality management at a premium can produce better results than buying into bad management at a discount: similar to being content to buy into the right equity at high PBV.

But buying only at a discount can, again, come down to individual requirements. I had intended to use the SIPP to fund an inflation-linked annuity, but the figures that I'm getting for this now, combined with the relative nearness of R-Day, means that I have decided to bite a bullet and go into drawdown instead, and for n years, where n is yet to be determined. So what was a capital preservation approach is now in the process of becoming an income generation approach. And right now, that does mean popular sectors. And as I don't want to manage this pool once it is set up, I don't want to try and use growth over income to provide my return - although growth of income is a primary concern - nor do I want to chop and change the assets in the pool in an attempt at timing returns.

In doing this, I am looking to match my specific objectives using these particular assets, and other investors will have different objectives and different timescales. This is why I don't see the discount/premium as always being a priority concern: I would rather buy into the right assets to do the job at a premium, rather than the wrong ones at a discount.