Investments and Returns - Example

masonic

jimjames wrote: »

Historically one of the main reasons to buy investment trusts has been the lower cost but since RDR (and before that fund supermarket discounts) this has largely disappeared and there is little if any difference and some are now higher than the equivalent OEIC.

Of course this is true insofar as the AMC/TER/OCF has come down for OEICs, but of course there are lots of costs not included in those charge figures. Pre-RDR, I seem to recall the total cost of funds being estimated at around 5%, when things like portfolio churn were taken into account, but it is quite difficult to obtain the required information to establish these hidden costs for OEICs, whereas ITs generally have greater transparency in what they report to the market regarding expenses.

jimjames

masonic wrote: »

I think it was clear in the OP that JJ did not pick this fund in hindsight - this is an actual investment chosen many years ago. However, it's worth pointing out that picking a single fund with a narrow investment objective is a high risk strategy for the reason you illustrate. I'm fairly sure none of those funds got a mention here 5 years ago as ones people were investing in, so hopefully nobody held any of those funds.

Interesting that some replies suggest I picked a fund that's done too well and others that it's done badly. Overall probably indicates it's a reasonable choice. Only reason I chose this investment was the report came through most recently and I thought the numbers looked like they'd be useful to others seeking income.

atush

It is certainly a post we can give a link to when coming across those needing income but afraid of investing anything and keeping 100% in cash.

AS it illustrates the point very well that as the fund itself goes up and down, the income it pays continues rising. And if only drawing income, this is the most important point.

george4064

Just to put the dividend re-investment into context vs taking the income as cash;

With dividends re-invested;
Total income: £2,524.80
No. of shares at end: 1,788
End of period stock value: £12,605.40

With dividends paid out;
Total income: £1,825.58
No. of shares at end: 1,515
End of period stock value: £10,680.75


Orange = Dividends re-invested
Blue = Dividends taken as cash

homerhotspur

This article reminded me of the thing that I find frustrating after investing in a number of accumulation unit -Investment funds. I do like to monitor my investments and thought I would get an annual statemnet showing income re-invested but discovered that , not only did this not happen, but it was pretty impossible to calculate. With Investment funds, the re-invested income does not buy new shares or units but is just reflecetd in the value of each unit which is then subject to the normal ups and downs of the market. Although I opted for funds, I wish there was a similar way to track returns and the effect of re-invested income clearly shown by the additional number of shares in a trust.

droopsnoot

Funnily enough I have the same issue.

racing_blue

It's a great post, but how do you choose your investment trust? How do you know you are making a good choice when you do? How would these figures compare to a world stock market ETF?

Eg. Vanguard FTSE All World USD, VWRL, +40.5% since inception on Jun 1st 2012.

£10000 invested then would be worth £14053 now, more if dividends reinvested

BLB53

It's a great post, but how do you choose your investment trust? How do you know you are making a good choice when you do? How would these figures compare to a world stock market ETF?

I think these are the essential questions every investor has to be sure about before they go for active ITs ahead of passive index funds.

The ITs performance can only be as good as the expertise of the manager - stock selection, timing, borrowing decisions, view on certain sectors etc.

I suppose we all like to believe we can select the best manager(s), just as the managers of the ITs believe they can regularly outperform their respective benchmarks - some do but many do not so at the end of the day its a bit of a lottery.

In reality however, the markets are very efficient. All the empirical evidence over decades shows that beating the market consistently after costs through skill or judgement is very difficult. The fund managers who can do this are rare and are very difficult to identify in advance.

This is why I now prefer globally diversified index funds, particularly the Vanguard LifeStrategy range.

george4064

BLB53 wrote: »

I think these are the essential questions every investor has to be sure about before they go for active ITs ahead of passive index funds.

The ITs performance can only be as good as the expertise of the manager - stock selection, timing, borrowing decisions, view on certain sectors etc.

I suppose we all like to believe we can select the best manager(s), just as the managers of the ITs believe they can regularly outperform their respective benchmarks - some do but many do not so at the end of the day its a bit of a lottery.

In reality however, the markets are very efficient. All the empirical evidence over decades shows that beating the market consistently after costs through skill or judgement is very difficult. The fund managers who can do this are rare and are very difficult to identify in advance.

This is why I now prefer globally diversified index funds, particularly the Vanguard LifeStrategy range.

The way I see it, it's not only about fund managers try to/do pick great stocks (positive stock screening) but it's also that they can avoid certain stocks (negative stock screening).

Looking at what's happened over the past 12 months, natural resources/commodities/oil stocks have had a torrid time. The index trackers are stuck with these stocks (look at the ftse 100's heavy weighting to miners), any half decent IT manager would not be holding these commodity stocks.

I'd be interested to see what the performance of FTSE 100 (ex miners and oil companies) would look like.

jimjames

homerhotspur wrote: »

This article reminded me of the thing that I find frustrating after investing in a number of accumulation unit -Investment funds. I do like to monitor my investments and thought I would get an annual statemnet showing income re-invested but discovered that , not only did this not happen, but it was pretty impossible to calculate. With Investment funds, the re-invested income does not buy new shares or units but is just reflecetd in the value of each unit which is then subject to the normal ups and downs of the market. Although I opted for funds, I wish there was a similar way to track returns and the effect of re-invested income clearly shown by the additional number of shares in a trust.

If you choose INC units and reinvest then you will see the income used to buy more units in the fund and your holding increases. Acc units will increase fund value without you knowing how much by.