Investment Trust v Unit Trust Questions

Chris75

I read repeatedly that good informed investors buy investment trusts and that amateurs buy unit trusts. This is normally justified by the lower charges of investment trusts, the possibility of a widening premium and perhaps their greater flexibility of types of holdings.


I have been looking at Troy Trojan/ Personal Assets Trust and CF Ruffer Total Return/ Ruffer Investment Company which are examples of where very similar mandates are held by the same manager both as Unit Trusts and Investment Trusts. In both cases, with income reinvested, the unit trust has basically outperformed the Investment Trust and at the same time been less volatile over pretty well any time period/discrete year that I can find back to 2005.


Are these isolated examples where unit trusts outperform, am I missing something or is conventional wisdom wrong?

Linton

Unit trusts used to have higher fees because they bundled in a number of things that ITs didnt. Now they dont and I think you will find charges are similar, especially if you factor in higher charges for buying/selling ITs.

There is a much wider choice of UTs. On the other hand many ITs are highly individualised perhaps with decades of honing a particular style whereas most UTs fit neatly into standard categories. There may be technical reasons to favour one more than another in particular circumstances. One example is if you want a fund that invests directly in property. With an IT if a lot of people sell the price goes down, and that's about it. On the other hand with a UT the fund manager at some stage has to start selling off his property, a much more difficult and expensive thing to do.

rpc

That isn't conventional wisdom!

Pre-RDR there was a gap in charges that could make a significant difference.

Beyond that, they have very different features although they may invest in the same shares. Pricing, reporting, trading, gearing are different.

Make an investment because you want to, not because it is an IT not and OEIC (or vice-versa)

Chris75

Yes I can well see the difference for something that holds ground rents or similarly illiquid assets but I cannot now find much justification for more mainstream holdings.


I take your point regarding historic fees although again the new position seems to be no advantage to investment trusts.

redux

I think they are examples that don't typify everything.

Compare Jupiter European and Jupiter Euro Opportunities, same manager, at times in the past and for certain time spans, and you might come up with a reverse conclusion. Yet for other time spans these same two have little difference.

Chris75

rpc wrote: »

That isn't conventional wisdom!

I have read it repeatedly - perhaps I am selective in my reading.

Linton

Chris75 wrote: »

I have read it repeatedly - perhaps I am selective in my reading.

Or reading stuff which is more than a year or two old.

Chris75

Linton wrote: »

Or reading stuff which is more than a year or two old.

At my age you don't adapt well to change!!!!

jimjames

Chris75 wrote: »

Yes I can well see the difference for something that holds ground rents or similarly illiquid assets but I cannot now find much justification for more mainstream holdings.


I take your point regarding historic fees although again the new position seems to be no advantage to investment trusts.

Fees might be more similar now but the other things to think about are:

1) Closed ended structure

Manager can buy and hold so they don't need to manage new money and redemptions every day which should benefit performance long term. This also benefits for illiquid assets like private equity or emerging markets where the manager does need to sell at loss if redemptions exceed deposits.

2) Gearing

Investment trusts can use gearing to enhance performance but equally used badly it can exacerbate losses.

3) IT is run by an independent board that can hold manager to account and change them if wanted. Unit trust is run by investment company to make profits for them and isn't overseen by independent board.

redbuzzard

You might reasonably expect an OEIC to be less volatile than a comparable IT regardless of gearing, simply because of the closed-ended nature of the IT - when it is doing well, the discount is likely to narrow or the premium increase, and vice versa.

I do have some ITs however - although I try to be an infrequent trader, having a proportion of managed equity investments that can be sold instantly at a known price helps when I want to reallocate.

Thrugelmir

Chris75 wrote: »

Yes I can well see the difference for something that holds ground rents or similarly illiquid assets but I cannot now find much justification for more mainstream holdings.

If a fund manager was forced to liquidate sizable shareholdings of particular companies then this would influence the market price.