Fund vs Trust

ToriP

Just wondering if people mix these types of investment together or mainly stick to one over the other, for any particular reason?

SeniorSam

Funds spread risk, but identifying the right funds and obtaining a suitable balance needs research and a little understanding. I like Funds.

ToriP

Yes i've got my funds, and was just wondering about a trust on the side. It was the Scottish Mortgage trust. Just wondering whether to keep that as a smaller investment product on the side of my fund ISA or to continue with the theme of funds and another fund such as an Asian Pacific

jimjames

If by trusts you mean investment trusts then yes I have both them and unit trusts (OEICs).

There are some investments that are just better suited to the closed end nature of an IT where it gives the manager freedom to invest without needing to worry about redemptions and new money coming in so they can plan long term portfolio. Some examples are property, private equity, smaller companies and emerging markets

Some investment trusts are also very cheap to hold for children's investment plans etc.

bowlhead99

"Funds" and "Investment Trusts" can all hold the same assets and there is no specific reason why a fund with a global portfolio could not hold the same mix of assets in its portfolio as Scottish Mortgage. A choice to use an IT is not really a change of "theme", simply a change of vehicle type.

The practical differences include the fact that an investment trust or investment company is listed on the stock exchange and priced in real time by the market based on best available information; therefore the price you buy or sell at may diverge more significantly from true asset value per share.

One of the drivers for this is that they will not create or cancel shares on demand so the trust simply manages a broadly fixed pool of capital and if you want to get your money back you sell your ownership to someone else on the stock exchange at whatever price the market will bear.

This is very useful for investing in illiquid assets like property, private equity, smaller companies, infrastructure projects, other private funds and so on. If you invested in an open ended Fund, the manager would have to deploy your new cash ASAP by buying new assets to avoid inefficiencies; if you later wanted out, he has to sell assets ASAP to get you your money back. This is tricky in various asset classes where buying or selling quickly or frequently is impossible or commercially disastrous.

The analogy is that if he owns a street of houses he can't just sell off one bathroom off house number 17 to get you your £7638.25 back at your whim. So closed ended funds have advantages over open ended funds and can stay smaller and more , while investors simply buy and sell between each other without putting money in and out of the company bank account.

Othenimbler features of ITs include the fact that they are more likely to be able to borrow (leverage), charge performance fees, and have an independent (or semi independent) board and shareholders who can vote for a new manager or a liquidation if they don't like how the company is run.

I hold various investment trusts and other entity types within my portfolio which also has "normal" funds. Different vehicles are more effective for different underlying asset types.

Totton

You can hold either together. I only hold IT's bas one OEIC for the simple reason that I try to understand what I am buying. It is easier for me to stick to the IT's as there are less of them for me to research. We hold just one OEIC as it sits alone in a small ISA, it is the Woodford Equity Income fund.

I find IT's are not as cheap relative to funds as they once were but nevertheless I find them much more transparent and often a better performer than a similar fund over longer time periods.

Another good reason for me to hold IT's is that I like the HL platform and my IT's are capped at £45 charges for the whole year, holding funds would cost me an awful lot more no matter which platform I chose.

As for Scottish Mortgage, not one I hold just now but a very good long term trust.

ToriP

thanks for the input, articles etc online are great but nothing beats the interaction of asking a question and getting some varied input and answers!

ffacoffipawb

I prefer investment trusts. You can buy and sell them in real time. With funds you have to wait until the next price point and you won't know the price in advance.

Also with Hargreaves Lansdown the annual charges of 0.45% for investment trusts are capped at £45 for an ISA. For funds, the fee is not capped.

£500,000 investment trusts --> annual fee of £45
£500,000 funds / OEICS --> annual fee of £2,250 :eek:

jimjames

Another totally irrelevant reason I like investment trusts and nothing to do with performance, but I do like the communications I get from them which are not as good with unit trusts. Annual reports can give some useful info on what you are invested it. It's also nice to be able to attend AGMs where you can meet the manager and have the opportunity to ask questions.

ToriP

Thanks.

At this point I think 500k pots and turning up at AGMs isn't quite on my radar at the mo

EdGasket

ffacoffipawb wrote: »

I prefer investment trusts. You can buy and sell them in real time. With funds you have to wait until the next price point and you won't know the price in advance.

Also with Hargreaves Lansdown the annual charges of 0.45% for investment trusts are capped at £45 for an ISA. For funds, the fee is not capped.

£500,000 investment trusts --> annual fee of £45
£500,000 funds / OEICS --> annual fee of £2,250 :eek:

Try ETF's (exchange traded funds). You can buy and sell in real time and the fund charges are much much lower than investment trusts. Annual fee, zero (at least with x-o, AJ Bell Youinvest, and TD Direct)