Artemis Income Fund. Very wide spread... why?

skillboy

Hi All

I am a newbie to fund investing and have been looking at different funds.

I noticed on the Artemis Income Fund (link below) that the buying and selling spread was very wide at over 6% (selling price is 311.78 pence and the buying price is 330.58).

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/artemis-income-retail-accumulation/key-features

Why is the spread so wide for this fund? Other funds seem to have the same buying and selling price so you don't lose anything on the spread.

Why would anyone buy this fund with such a wide spread? Doesn't it effectively mean that as soon as you buy it you are already over 6% down on your investment?

Comments greatly welcome!

Rollinghome

skillboy wrote: »

Why is the spread so wide for this fund? Other funds seem to have the same buying and selling price so you don't lose anything on the spread.

It's a unit trust with traditional dual pricing, bid and offer. Most, but not all, unit trusts have dual pricing; most, but not all, OEICs have single pricing.

On that fund if you take off the initial charge of 5.25%, as most on-line brokers including HL usually do, you're left with a spread of 0.75% which, in theory, is the cost to the fund of creating the units. With single priced funds that cost is still born by all investors but within the fund from returns.

So an explicit initial spread won't make much difference if you've bought for the longer term but will if you resell shortly after buying. You also need to make an adjustment when comparing return figures as they're given bid to bid and ignore all initial charges and spreads.

talexuser

skillboy wrote: »

Why would anyone buy this fund with such a wide spread? Doesn't it effectively mean that as soon as you buy it you are already over 6% down on your investment?

Yes, but anyone who does that is foolish since you can go to a discount broker who will discount the spread or just have to pay a percent or less.

Why do they do it? Almost all funds had a ~5% spread before Open Ended came in with a single price and many converted. Artemis can get away with it maybe because Adrian Frost has a good long term reputation and the fund is often recommended (I have had it myself for 6 years or so).

Rollinghome

talexuser wrote: »

Yes, but anyone who does that is foolish since you can go to a discount broker who will discount the spread or just have to pay a percent or less.

Why do they do it? Almost all funds had a ~5% spread before Open Ended came in with a single price and many converted. Artemis can get away with it maybe because Adrian Frost has a good long term reputation and the fund is often recommended (I have had it myself for 6 years or so).

It looks as if he was referring to a discount broker - the link is for Hargreaves Lansdown - but presumably missing that the 6% offer to bid difference was before the initial charge of 5.25% was removed which leaves the actual spread at 0.75%

In most cases it doesn't make much difference. You still pay those costs one way or another, either explicitly as in that fund or hidden and nibbled away from the return. From a marketing point of view, single pricing probably looks better but some would argue an explicit charge is fairer by being borne by the new investors who cause the costs rather than being borne by long-term existing investors.

Some single-priced funds avoid the unfairness to existing investors by charging a dilution levy to new buyers which should go into the fund to boost returns but there's so much smoke and mirrors surrounding fund expenses you're probably better just concentrating on the bottom line.

Anyone using an intermediary that doesn't remove the initial charge will find they add a charge to single-priced funds.

cepheus

skillboy wrote: »

Hi All

I am a newbie to fund investing and have been looking at different funds.

I noticed on the Artemis Income Fund (link below) that the buying and selling spread was very wide at over 6% (selling price is 311.78 pence and the buying price is 330.58).

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/artemis-income-retail-accumulation/key-features

Why is the spread so wide for this fund? Other funds seem to have the same buying and selling price so you don't lose anything on the spread.

Why would anyone buy this fund with such a wide spread? Doesn't it effectively mean that as soon as you buy it you are already over 6% down on your investment?

Comments greatly welcome!

I would avoid Unit trusts (unlike OEICS) like the plague, their pricing is opaque and the fund managers still seem to be allowed to award themselves free money by widening the spread without sufficient justification. The introduction of OEICS seem to have spoilt their free lunch in this regard.

Rollinghome

cepheus wrote: »

I would avoid Unit trusts (unlike OEICS) like the plague, their pricing is opaque and the fund managers still seem to be allowed to award themselves free money by widening the spread without sufficient justification. The introduction of OEICS seem to have spoilt their free lunch in this regard.

The goalposts for OEICs (and ICVCs) can also be moved by switching to pricing on an "offer basis" or on a "bid basis" - as Invesco Perpetual have just done with the funds managed by Neil Woodford. And you won't be told the pricing basis when you trade. The most opaque aspect of both UTs and OEICs is the funds costs, especially those not included in the TER/OCF.

cepheus

Rollinghome wrote: »

The goalposts for OEICs (and ICVCs) can also be moved by switching to pricing on an "offer basis" or on a "bid basis" - as Invesco Perpetual have just done with the funds managed by Neil Woodford. And you won't be told the pricing basis when you trade. The most opaque aspect of both UTs and OEICs is the funds costs, especially those not included in the TER/OCF.

Will this change from bid to offer or the other way around, be a semi permanent one off change, or can they switch them back and forth every day to suit? I didn't realise anything other than a single price for each day or period existed, can it be known subsequently? One of the purposes of introducing OEICs was supposed to make them more transparent.

this is HLs tale for what it's worth

OEICs
OEICs normally have one price for buying and selling, although some OE-
ICs are priced in the same way as unit trusts. The initial charge is simply
added to this single price when shares are purchased. Again we offer sav -
ings on the initial charge so you pay a lower price than investors who buy
with no saving. Where we offer a full saving on the initial charge, buyers
simply pay the fund’s single price.

Unusually high levels of buying and selling may increase the fund’s deal-
ing costs and affect the value of its assets. In this case, to protect the in -
terests of existing investors the fund manager may apply a ‘dilution levy’
which increases the cost of buying and selling. This is typically between
0.5% and 2%, and the proceeds are held within the fund.

If this is true I would like to know when that dilution levy has been applied and how much.

Rollinghome

cepheus wrote: »

Will this change from bid to offer or the other way around, be a semi permanent one off change, or can they switch them back and forth every day to suit? I didn't realise anything other than a single price for each day or period existed, can it be known subsequently? One of the purposes of introducing OEICs was supposed to make them more transparent.

this is HLs tale for what it's worth

If this is true I would like to know when that dilution levy has been applied and how much.

What they say is correct. The pricing basis on OEICs can be moved up and down like a yo-yo and from what I can remember the rules are very vague, pretty much if they decide it's "in the interests of the fund". They can also decide to suspend redemptions completely.

As almost all funds are now forward-priced you won't know the pricing basis when you buy or sell and not sure you'll always be able to find out afterwards either or what you'd do if you didn't like it. If you wanted to know the price and spread in advance you'd need to use ITs or ETFs.

It's also correct that OEICs can be dual-priced too, despite many people, including IFAs, believing otherwise. Take a look at Old Mutual's dual priced OEICs for example: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/o/old-mutual-uk-equity-accumulation

Linton

cepheus wrote: »

Will this change from bid to offer or the other way around, be a semi permanent one off change, or can they switch them back and forth every day to suit? I didn't realise anything other than a single price for each day or period existed, can it be known subsequently? One of the purposes of introducing OEICs was supposed to make them more transparent.

this is HLs tale for what it's worth

If this is true I would like to know when that dilution levy has been applied and how much.

Vanguard operates a dilution levy in some cases - see here.

cepheus

Yes but HL don't mention the offer/bid change. Is this in addition to, or the same thing as the 'dilution levy'?

In practice the prices I obtained for OEICs have been generally OK, but occasionally up to a percentage point difference than what I expected, sometimes in my favour.

What we really need to know is the true 'net asset value' of the fund calculated on a consistent basis, irrespective of what the fund manager would like to quote, and what they actually charge to buy or sell.

All this terminology is for the purposes of deception in my opinion.

talexuser

cepheus wrote: »

All this terminology is for the purposes of deception in my opinion.

Now who would have thought that of the Financial Services Industry?