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IT Portfolios - Top Ten Holdings
Comments
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The last part of your original comment said that Scottish Mortgage is not as highly geared as some. Looking at the comment as a whole it appeared as if you were indicating that SMT was highly geared but not as high as some other ITs.
Exactly, simply by saying SMT is over 100% Gross Geared you thought I was saying it was highly geared. Without knowing the definition of Gross Gearing the number is misleading. I would say that many people who own ITs have no idea about the gearing ratio or how it is used to improve returns and that it might amplify losses in bad times.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
I’m going to pick up one word you used. I understand that gearing might amplify losses in bad times. This discussion has made me realise I have no idea how much it might amplify losses. There are presumably two components to that. First, the level of gearing and the amount the NAV/price of the IT falls in bad times. Second, the terms at which the IT has borrowed the funds in order to gear. Is it 1%, 3%, 7%? I’ve never stopped to think about it and without that information I do not really know what additional risk the gearing brings.bostonerimus wrote: »I would say that many people who own ITs have no idea ... that it might amplify losses in bad times.0 -
aroominyork wrote: »I’m going to pick up one word you used. I understand that gearing might amplify losses in bad times. This discussion has made me realise I have no idea how much it might amplify losses. There are presumably two components to that. First, the level of gearing and the amount the NAV/price of the IT falls in bad times. Second, the terms at which the IT has borrowed the funds in order to gear. Is it 1%, 3%, 7%? I’ve never stopped to think about it and without that information I do not really know what additional risk the gearing brings.
You could look back over the historical performance and see how the IT performs against a benchmark. I'm sure most ITs are run according to sound internal rules by sensible people and their borrowing and investment strategies are well planned, but I have no idea what the reporting requirements are or if you can find out the borrowing terms to assess risk. There's a lot more going on in an IT than in an open ended fund which is just something that people should consider when buying them. I'm sure the knowledgable regular posters here have done that, but I bet there are many buyers who haven't.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Bowlhead beat me to it with post #20 (corrected from #21). A crackin' response Imho.
I write as a former analyst so really do appreciate how quoting percentage figures, without defining what the 100% actually is can be both misleading and confusing at the same time! Just to say it is gross gearing to those who do not have understanding of the term -but who nevertheless do appreciate the risks of gearing, the potential upsides and downsides- is just plain unfair and really out of the context of the thread started by the OP.
Boston is well known on this board now for his/her personal dislike of ITs but at times is misinformed or perhaps bases comment solely upon US ITs. To back that up I quote
"Also as IT's are popular in the UK and are strongly marketed to the the average UK investor "
In fact historically and even today it has been the open ended funds marketed to the average investor and Closed ones tended to be used by more experienced and above average investors.
About risk one could just as rightly warn against almost any investment in shares as the underlying assets are very often geared and it could seem to the average or inexperienced investor that an open ended fund negates that risk when it is simply hidden. Not only that, those funds might just be investing your units in much riskier companies!!
IT prices can be volatile but we should take a long term view. On the whole over the longer term ITs perform slightly better on the capital front and, as has been pointed out, the better ones can show some decades of excellent dividend ( income ) performance with low volatility and rising trends. Just the job for retirement income.
It is not justifiable to single out one trust to try and give justification to an argument either way.
Perhaps it is different in the States?0 -
Ainsley1 that's a great post and counterpoint to my perspective. I have hijacked this post, but maybe the people reading this thread will now look a little more carefully at ITs and how they differ from other fund types. It's always important to understand what you are buying and how the fund dividends and gains are generated. I hope you are right and that Closed End Funds are mostly purchased by fairly experienced investors and that it stays that way.“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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Boston is well known on this board now for his/her personal dislike of ITs but at times is misinformed or perhaps bases comment solely upon US ITs.
Only six months of posting and I'm infamous.....job done.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
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Ha! Caught well and truly with my trousers down there.
Spot on Capital! It should have been post #20......will try and edit to correct!:o
Yes do keep posting Boston. We may not always agree with you (infamy, infamy, we've all got it in for you -to miss quote a great film!) but you raised a valid issue!0 -
FYI I had an interesting discussion with a friend the other day.....we are chalk and cheese when it comes to investing, he's very active, I keep it passive and simple. He's just put "big bucks" into a Pimco US closed end fund (PHK) because it's premium has fallen over the last year from 30% to 10% and the NAV is basically flat. It is 124% gross geared. It's a high yield bond fund and I avoid those because for me bonds should reduce the risk of my overall portfolio....not increase it. It owns lots of below investment grade bonds and also has some long duration bonds too.....just too much excitement for me with rates probably on the rise. He's done his research and thinks he's on to a winner. Everyone should always do due diligence when buying closed end funds and understand what goes into the returns.“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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