Investment Trusts?

TUVOK

I have always only invested in shares and funds, never in Investment Trusts.
Could more experienced investors give their opinion on the benefits of opening one or more, and perhaps giving their opinions on which one's are worth considering?
Thanks for any/all replies.

Computer_Beginner

TUVOK wrote: »

I have always only invested in shares and funds, never in Investment Trusts.
Could more experienced investors give their opinion on the benefits of opening one or more, and perhaps giving their opinions on which one's are worth considering?
Thanks for any/all replies.

I would not consider myself experienced, but I believe the benefits to IT include the structure of the company and the fact that an IT is traded on a stock exchange. Plus they're closed-ended funds, as opposed to OEICs. As far as I'm aware all ITs are actively managed, whereas OEICs can be active or passive. ITs can also borrow money, which is something I'm not keen on (seeing as how so many companies they invest in will also have debts), but it doesn't seem to concern other investors much.

Just like funds, ITs have different risk / asset profiles.

TUVOK

I'm interested in how investors think of IT's as a part of their portfolio.
Do you think of holding IT's as essential or do some investors exclude them for what ever reason?
Are there specific geographic areas in which IT's are more suited too?
Also for example would some investors for example invest in a suitable UK IT fund or go for a fund such as L/Train UK equity?
I'm trying to find out how more experienced investors view IT funds personally.
Thank you

Linton

TUVOK wrote: »

I'm interested in how investors think of IT's as a part of their portfolio.
Do you think of holding IT's as essential or do some investors exclude them for what ever reason?
Are there specific geographic areas in which IT's are more suited too?
Also for example would some investors for example invest in a suitable UK IT fund or go for a fund such as L/Train UK equity?
I'm trying to find out how more experienced investors view IT funds personally.
Thank you

Whether a fund is an IT or an OEIC/UT is a secondary concern. Much more important is what the fund invests in and its general approach. So my advice is to identify your objective in buying a fund and then look at both types to find the best match.


I hold both OEIC/UTs and ITs.

dunstonh

I'm interested in how investors think of IT's as a part of their portfolio.

I very rarely use ITs. Most investors don't have the knowledge or experience to understand them. On a risk basis, they are typically 1 notch above the equivalent UT/OEIC. With unbundling, ITs no longer have the cost benefits they used to. No FSCS protection.

Also for example would some investors for example invest in a suitable UK IT fund or go for a fund such as L/Train UK equity?

That may fill your UK allocation but what about the other 10 or so sectors? Before you start deciding whether an OEIC/UT or IT/ETF fills a sector allocation, you need to decide if you are ready to build a sector allocated portfolio. That is more important.

System

Most of my portfolio is in global ITs (F&C, SMT, etc.), but recently I have invested in a global exchange traded fund (ETF), which avoids paying stamp duty. ETFs and ITs are traded on the stockmarket like shares.

BLB53

I have held ITs for many years. Some for income such as City of London and some for global growth and exposure to tech...Scottish Mortgage.

My core holding is Vanguard Lifestrategy and the ITs are satellites. If I feel the urge to tinker with my portfolio, it will most likely be one of the ITs rather than the core holding.

Traditionally, ITs had lower costs compared to funds but the gap has narrowed in recent years. Also the platform costs can be lower as charges are capped with some providers.

Reaper

I know Dunstonh is not keen on ITs but it is one of the few subjects on which we don't agree. They have done well for me. So here's the alternative view:

There is lots of variation but a typical IT...

* May use gearing (borrowing). This can exaggerate performance - doing better than an OEIC in the good times and worse in the bad times. But hopefully there will be more good than bad in the long run.
* With an OEIC there is a direct correlation between money from investors and investments. If investors panic sell the funds have to cash in their investments even if it is a bad time. That is a particular problem with investments that are not liquid (eg property, infrastructure) and could result in significant losses. ITs on the other are not compelled to sell when investors do.
* Huge generalisation but ITs tend more to look at the long term. eg Typically the board appoints an investment firm to manage the investments for them. If they don't perform the firm can be replaced. With an OEIC the investment firm are likely the owners too. They might replace the odd member of staff but have more of a tendency to give up and close an under performing fund, then launch another.
* In the long term (over 10 years) ITs often outperform their OEIC equivalents.
* ITs are shares with the benefits of a fund. As a result they can be cheaper on many platforms as they allow you to construct a share only portfolio with an execution only broker.
* ITs are allowed to hold back 15% of their revenue for a rainy day. That means they can smooth the boom/bust cycles and pay out steady, reliable dividends. There are 21 investment trusts that have increased their dividend every year for over 20 years. Some of them have managed over 50. So although ITs are often claimed to be more volatile that need not be the case.
https://www.theaic.co.uk/aic/news/press-releases/aic-dividend-heroes

dunstonh

I know Dunstonh is not keen on ITs

Don't read that into it. I do use them. It's just a position with the average consumer. Plus, do remember that I have the FOS to deal with if it goes wrong. Can you imagine their response if I used an investment that is generally classed as more advanced with no FSCS protection with an inexperienced investor?

So, its more a case of them needing to be for the right person.

ColdIron

There are many differences between the two and you should understand all of these before you invest. However one is not innately better than the other in the same way that a spanner is not better than a screwdriver, it's a matter of suitability for the job. For instance one area that ITs have a clear advantage is in illiquid or difficult to trade sectors such as property, infrastructure or some types of bonds. Because they are not open ended they don't have to buy or sell quickly to meet sudden inflows or outflows, you can't sell a bit of an office, hospital or prison and funds may need to keep a lot of cash on hand to cope with this so they won't always be fully invested. But even this may not be enough, consider M&G and Standard Life just after the referendum, they had to close the funds to redemptions trapping their investors

Scottish mortgage isn't good because it's an IT, it's good because it has a talented manager and is invested in the right things for the moment but if you have a nut to undo, use a spanner

JohnRo

I like IT investing for the potential they have to enhance returns over and above the underlying assets in the long term, to keep paying dividends through tough times and their independent oversight.

The IT structure with (possible) capital gearing and share price premiums or discounts to NAV does introduce additional risk / volatility but that can be just as much an advantage as a disadvantage at different times, the key is understanding what you're getting into and taking a much longer term view.

I don't know what you've read about them so far but this fairly concise summary might help.

https://www.moneywise.co.uk/funds/investing/investment-trusts-weighing-the-key-advantages