Investment Trusts or OEIC's

Sally57

I currently only have one IT in my entire portfolio (FAS - Fidelity Asian Trust) but I am considering adding a couple more instead of the OEIC's I have in certain regions/sectors.

Purely as an example, if I was interested in Finsbury Growth & Income Trust as part of my UK holding would this be a better option than the CF Lindsell Train UK Equity (OEIC)? They both have roughly the same holdings and manager but I believe the fees for the IT is lower than the fund so that may be why it has performed slightly better?

Although I understand the basic differences between an IT and OEIC I would appreciate any pointers on this subject. Are there any admirers of IT's or OEICs that could explain why they prefer one to the other or do most people tend to hold both in a portfolio? (I have deliberately left out ETF's).

george4064

I prefer ITs, but its a personal choice and I can certainly see the benefits to OEICs. Each type has its advantages and disadvantages.

You need to weigh up your circumstances, taking into account fees, dealing charges, admin charges, performance and the additional risk (but also additional potential returns) that ITs have.

dunstonh

They both have roughly the same holdings and manager but I believe the fees for the IT is lower than the fund so that may be why it has performed slightly better?

ITs are not always cheaper since unbundling. ITs are frequently higher risk than the equivalent OEIC due to pricing (discount/premium) and gearing which do not apply to OEICs. Those same things that can enhance returns during growth periods can also enhance losses during negative periods. They also need a bit more monitoring as you are not just looking at the assets they invest in but also the pricing.

ColdIron

I like ITs for income portfolios. The ability to provide smoother, sometimes ever increasing, dividend payments can be a benefit. I'm agnostic between them for growth and you're flat out of luck if you are a fan of index trackers

Due to their closed ended nature they are a good vessel for illiquid securities such as some bonds, private equity etc. I wouldn't easily hold property in open ended funds, the Brexit vote in June was a good example of why not

jimjames

As per ColdIron I like ITs for illiquid investments or potentially volatile ones. I have ITs for private equity and emerging markets as it means they aren't impacted by customer panic selling if the market drops. Long term I also think it helps with gearing and generally I believe it's been shown that performance on average is better for ITs across sectors but obviously not guaranteed.


I prefer OEIC for trackers as the costs are substantially lower. For example Aberdeen UK tracker is around 0.3% whereas the lowest tracker fund I have is at 0.06%

Totton

Nick Train invests in Finsbury Growth Trust, always a good sign imho to see the manager using his own fund. Finsbury is my core UK fund so best do your own research.

IT's are in my experience no more risky than funds but you do need to be aware of discounts & gearing as Dunstonh informs. A good example of this would I think be Henderson Smaller Co's, a cracking IT but on a large discount due to peoples concerns for the UK.

You could do as some which is to switch between the OEIC and IT as and when the discount/premium swings but in the case of Finsbury it is often at a premium even when market sentiment is poor. http://www.theaic.co.uk/companydata/238/performance

HTH,
Mickey

Sally57

Thank you all for your input. I must admit that in my research I have not been too worried about the additional risk mainly because there are quite a lot of IT's that have great performance records over very long periods of time so if chosen wisely they should be no riskier than OEIC's.

Great points about IT's for income portfolio's and also illiquid/volatile investments such as private equity, property and emerging markets.

Are there any regions/sectors that are a more of a concern for IT's?

MPN

Sally57 wrote: »

Are there any regions/sectors that are a more of a concern for IT's?

I tend to stick to Global, UK, EM, Japan and Asia Pacific regions for IT's.

Rollinghome

I'm a big fan of ITs for various reasons and have been investing in them since long before I ever invested in UTs/oeics, going back to the '70s.

But be aware, one of the reasons that ITs appear to have performed so well in recent years is that after a long bull market the discounts have closed, which pushes up the share price, which has in turn made them more popular and so shrunk discounts still further. Discounts can't close forever and should we have a market correction then we'll have the double whammy of discounts widening as NAVs fall. The gearing that boosts returns in a rising market will also hurt when prices fall.

In the meanwhile RDR has caused the cost of holding UTs to fall. For example with IWeb, it costs just £5 to buy either a UT or an IT with no further platform charge; but the IT will also have 0.5% SDRT to pay and a spread between the buying and selling price. So you need to do the calculations of which is the better investment including whether the IT is being run in a way that would help it out-perform a UT version. It's no longer the slam-dunk for ITs it once was and one or the other might be the better bet at different times. There are many mirror funds where the IT version is underperforming the UT version, such as Henderson Smaller Cos, mentioned earlier - plus the IT version is way more volatile than their UT version. There are others where the IT has well out performed the UT.

In the case of FGT it may come down to the platform or broker you use. The class D units for Lindell Train UK Equity, if you can access them, have an OCF of just 0.52%. FGT has an OCF of 0.78% but has had a slightly better return - around 0.75% pa. The discount is managed close to par but is at a small premium at the moment. If we had a correction then that could go to a discount as it did a few years back.

Oh, and if you can get to the FGT AGM, normally held in the Guildhall crypt, they serve a decent boozy lunch to shareholders.

Alice_Holt

Rollinghome wrote: »

I'm a big fan of ITs for various reasons.

I am a fan too.
Another advantage is that IT's have an independent board of directors, who have the power to sack under-performing managers.

My generalist global IT's have served me well over the years. They also suit my buy and hold / get rich slowly investment style.

Sally57

Rollinghome wrote: »

I'm a big fan of ITs for various reasons and have been investing in them since long before I ever invested in UTs/oeics, going back to the '70s.

But be aware, one of the reasons that ITs appear to have performed so well in recent years is that after a long bull market the discounts have closed, which pushes up the share price, which has in turn made them more popular and so shrunk discounts still further. Discounts can't close forever and should we have a market correction then we'll have the double whammy of discounts widening as NAVs fall. The gearing that boosts returns in a rising market will also hurt when prices fall.

In the meanwhile RDR has caused the cost of holding UTs to fall. For example with IWeb, it costs just £5 to buy either a UT or an IT with no further platform charge; but the IT will also have 0.5% SDRT to pay and a spread between the buying and selling price. So you need to do the calculations of which is the better investment including whether the IT is being run in a way that would help it out-perform a UT version. It's no longer the slam-dunk for ITs it once was and one or the other might be the better bet at different times. There are many mirror funds where the IT version is underperforming the UT version, such as Henderson Smaller Cos, mentioned earlier - plus the IT version is way more volatile than their UT version. There are others where the IT has well out performed the UT.

In the case of FGT it may come down to the platform or broker you use. The class D units for Lindell Train UK Equity, if you can access them, have an OCF of just 0.52%. FGT has an OCF of 0.78% but has had a slightly better return - around 0.75% pa. The discount is managed close to par but is at a small premium at the moment. If we had a correction then that could go to a discount as it did a few years back.

Oh, and if you can get to the FGT AGM, normally held in the Guildhall crypt, they serve a decent boozy lunch to shareholders.

So if you don't have the knowledge or experience of IT's are you basically saying its best to stick with OEIC's due to increased risk and volatility ?