Reasons for and against ETs?

C_Mababejive

I have kind of fallen out with OEIC/funds a while back and cashed them all in. I have a mix of shares and cash. My plan is to slowly de-risk by shifting toward buying into ETs.

Im wondering though if there are any reasons not to buy ETs?

I'm also looking for suggestions of ETs that aim to provide steady income and growth potential with lowish volatility. Im not into taking big risks now !

I am thinking the usual suspects eg CTY etc

any thoughts welcome..

My plan..? Wealth preservation, generating income some of which will be re-invested.

greenglide

CTY is and Investment Trust - IT.

Are you getting mixed up between Investment Trusts and Exchange Traded Funds (ETF)?

ITs are "closed ended" ETFs are "open ended" in the same way that OEICs and Unit Trusts are.

bowlhead99

As above - I don't know what an "ET" is. When you say ETs but then mention CTY s an example of what you might buy, we presume you mean Investment Trusts (ITs), right?

With a random selection of ITs you won't "preserve wealth" any more than with a random selection of OEICs, it depends on the strategies of the ITs you select.

You ask if there are any reasons not to buy ITs. If you fully understand all the pros and cons and still want them, then clearly, no.

Reasons that ITs are more complex include, in some cases, structural gearing, and in most cases, discounts/premiums compared to NAV - although they may have a discount/premium control mechanism.They are bought in real time on the stock exchange so will incur dealing costs from your broker/ platform and most of them are UK incorporated so incur 0.5% UK stamp duty to buy.

The example you mention, City of London investment trust plc has a decent and long track record. It's currently about 90% invested in UK listed stocks skewed towards dividend payers, though over the last five years has lagged the total return of the Morningstar UK equity income sector average index, without really having any better volatility - as you can see from their factsheet.

https://www.janushenderson.com/ukpi/Document/8359/the-city-of-london-investment-trust-plc-factsheet.

There are other ITs which deliberately have a wealth preservation strategy, such as Personal Assets Trust (PNL - http://www.patplc.co.uk/sites/default/files/documents/84.pdf), Ruffer Investment Company (RICA - http://www.ruffer.co.uk/cmsfiles/reports/RIC_Monthly_report.pdf) or perhaps RIT Capital Partners (RCP - http://www.ritcap.com/sites/default/files/245291%20RIT%20R%26A%20Interim%20WEB.PDF)

However, those pay lower dividends than CTY. The "usual suspects" (however you are defining them as "usual") paying higher income or offering higher growth might perform worse in a downturn.

I guess "aim to provide steady income and growth potential with lowish volatility" is something plenty of people would be happy with - though "aim to" and "potential" acknowledges the difficulty with "actually achieve" and "definite".

As you "kind of fell out with" OEICs but kept your individual company shares, and haven't said why you fell out with the OEICs as an investment vehicle or which ones you had, it's difficult to recommend specific ITs that might float your boat. If you already know the "usual suspects" that you want, and there is no equivalent OEIC/UT that could rival them: just go ahead and get them?

C_Mababejive

Yes sorry,mistyped,, ET means IT. I also had ETFs in my head when typing..

Funds,well i fell out with the charges really,platform charges ,fund charges etc, it all adds up.

I have a lot invested in individual shares and want to de-risk via diversification and saw ITs as a possible vehicle for this whilst keeping charges low and having the agility to trade quickly rather than the lag there is with funds. I understand the NAV/price/discount thing and gearing is today with borrowing ?
Guess im just looking for hidden pitfalls?

Alexland

If you don't like the charges for OEICs you will hate the charges for ITs. Many platforms charge more to trade them and then you pay stamp duty and a cost to reinvest dividends. The cheapest option is probably ETFs but my view is the best investments are packaged as OEICs for whatever reason.

Also the price of ITs tends to drop more in a downturn which can be good, bad or meaningless depending on how you use them!