Investing in a small fund OEIC

[Deleted User]

I'm thinking of investing in a fund with a total size of just £15m

In 30 years, I plan to sell the fund. Is it possible that the fund is so small, that there would be no buyers for it?
Or if I want to sell the fund, does the fund manager sell the FUND to a new buyer, or can he/she sell the individual stocks in the fund to return my money?

tin586

At that size, it sounds like a micro cap fund (MI Downing?).

As an OEIC it will have daily dealing at a single valuation point. The managers pay you from their cash holding or have to sell stocks to be able to do so.

In a bad case scenario, if lots of investors are trying to get out, you might find redemptions are subject to a dilution levy.
In a very bad case case scenario you might find the fund is gated (see Woodford).
In a horrific case scenario, the fund basically collapses.

A micro cap fund will be more susceptible to liquidity issues and some of its investments imploding.

Can’t see it being around in 30 years. It might get folded into another fund if it’s severely underperforming and/or shrinks to an unviable size.

None of this is to say you shouldn’t invest (some of your money) in small funds or micro cap funds - as long as you recognise the risks.

[Deleted User]

It is Gravis Clean Energy Income Fund C GBP Accumulation

In a horrific case scenario, how could the fund collapse?

tin586

The underlying holdings get into difficulty or go broke, for example.

[Deleted User]

Yes but say there are 50 holdings in the fund which spreads the risk well.

Albermarle

Yes but say there are 50 holdings in the fund which spreads the risk well.

Normally you are right . When the other poster mentions an horrific scenario /fund collapse , it means that the whole financial system has imploded to a point never seen before. By which time you will not be worrying about OEIC's but barricading your home against looters.
So hopefully a very unlikely scenario.

tin586

A global tracker would have over 6,000 holdings but it still not risk free.

The point here is that the 50 holdings are in one sector that is arguably niche.

It is noteworthy that the KIID flags counterparty risk and market risk as additional material risks.

Prism

newbinvestor wrote: »

Yes but say there are 50 holdings in the fund which spreads the risk well.

Sure, but there aren't curently 50 holdings in this fund - just 18. Not a particular problem but not quite as safe. Its also single sector so the raises the risk quite a bit. As a small part of a much bigger investment maybe.

[Deleted User]

True, this is just a small bit (5%) of my portfolio though.

My point was if I want to sell my fund in 20 years time, does the fund manager sell units of the fund to pay me, or sell units of the funds holdings...

Linton

newbinvestor wrote: »

True, this is just a small bit (5%) of my portfolio though.

My point was if I want to sell my fund in 20 years time, does the fund manager sell units of the fund to pay me, or sell units of the funds holdings...

The fund managers buy and sells units directly so the size of the fund is not a problem in this respect. What may well happen is that the fund becomes too small to be able to be managed profitably. In this circumstance it will probably be merged with another fund which may not meet your objectives.


The potential problems with a fund (any fund) mentioned in some other replies are related to the assets the fund invests in, which is a very different matter.

ColdIron

newbinvestor wrote: »

My point was if I want to sell my fund in 20 years time, does the fund manager sell units of the fund to pay me, or sell units of the funds holdings...

When you invest in a fund you send the manager your £1,000, or whatever, and he will buy shares in the underlying companies that make up the fund. He will create units to match your investment and allocate them to you. If the unit price was £2 then you have 500 units that didn't exist before

Later you instruct him to redeem your 500 units. The manager will sell shares in the underlying companies at that time, cancel your 500 units and send you the proceeds. The unit price might be higher or lower than your original purchase

The fund manager cannot sell units as they are not tradable on an exchange in the same way that shares in investment trusts are

Or if I want to sell the fund, does the fund manager sell the FUND to a new buyer, or can he/she sell the individual stocks in the fund to return my money?

The latter, there is no market for units, in effect he would be selling to himself and this would become rather recursive. The manager simply creates and cancels units to match inflows and outflows