Investing in a small fund OEIC

[Deleted User]

Thank you very much, I think I understand it.

However, with ETFs, I believe they are traded on the stock exchange. In the case where I go to sell my ETF fund, does the fund manager now sell units of the ETF rather than selling individual stocks?

Thrugelmir

Have you considered using Investment Trusts for niche market sectors?

ColdIron

newbinvestor wrote: »

However, with ETFs, I believe they are traded on the stock exchange.

That's right. ETFs, like ITs and company shares etc, are traded on an exchange. Funds (unit trusts, OEICS etc) operate very differently

In the case where I go to sell my ETF fund, does the fund manager now sell units of the ETF rather than selling individual stocks?

Point of pedantry: you do not 'sell my ETF fund'. Funds are comprised of units and ETFs (along with ITs and company shares) are comprised of shares. You would do well to make the distinction

When you sell shares in your ETF you do not instruct the fund manager at all. Your sell instruction will be matched by your broker with one or more buy instructions from other buyers on the exchange. The fund manager takes no part in the process and no sale or purchase in the underlying companies takes place (at least in the same way that it would in a fund, it's a bit more complicated than that for ETFs though not for ITs but let's walk before we run). The shares are not created or cancelled, they are simply transferred between the parties involved

[Deleted User]

Yes and no, why should I?

I looked at the Scottish investment Trust and wasn't sold.

1. They seem to be "income" funds where they pay out the dividends. I prefer Accumulation.
2. The management charges seem to be over 0.5%.
3. I suppose they are already in my FTSE tracker (will be a small percentage though).

[Deleted User]

ColdIron wrote: »

When you sell shares in your ETF you do not instruct the fund manager at all. Your sell instruction will be matched by your broker with one or more buy instructions from other buyers on the exchange. The fund manager takes no part in the process and no sale or purchase in the underlying companies takes place, The shares are not created or cancelled, they are simply transferred between the parties involved

Thanks. My worry is say tracker funds no longer become popular for whatever reason and no one interested in buying my shares of ETF Ftse 100 tracker. As you say, the shares of the ETF are transferred, not the shares of the underlying assets (ftse 100 companies).

Whereas, with the OEIC, the shares of the underlying assets are sold.

Do you know what I mean?

ColdIron

We may be in danger of wandering too far from your original post. Your concern seems to be what would happen with a very small fund in 30 years time. If the fund was unpopular it's unlikely to exist for very long and would be either be merged or sold up at whatever the net asset value of the underlying shares was. If the underlying shares were illiquid the process could take longer but such is the nature of investing in small niche funds

Whereas, with the OEIC, the shares of the underlying assets are sold.

If there were mass redemptions the underlying shares would be sold in either an OEIC or ETF

[Deleted User]

Ok, if it was a small fund ETF which I'm also looking at, and there were no buyers for the ETF in 30 years, what would happen? Do you think the ETF fund manager would sell the shares in the underlying assets and pay me back?

Thrugelmir

newbinvestor wrote: »

Yes and no, why should I?

I looked at the Scottish investment Trust and wasn't sold.

1. They seem to be "income" funds where they pay out the dividends. I prefer Accumulation.
2. The management charges seem to be over 0.5%.

Thought that you were considering investing in a niche sector. SIT is a large IT with a broad global remit.

1. Funds that grow and grow in size, will ultimately struggle to fulfill their particular mandate. As they themselves will become a dominant player in that market.
2. SIT is in essence an active fund. Likewise panning for suitable micro companies will require a far higher degree of research. This will come at a considerable cost, relative to the size of the funds under management.

AnotherJoe

Its very unlikely there will suddenly be no buyers. Assuming there is an underlying issue with the companies in the ETF, the price will drift downwards over time.

As an example, if you look at WPCT, even though its full of steaming horse dung there are still buyers for it as well as sellers, an equilibrium has been reached.

Unless you are planning to buy this, then lock yourself in a cave for 30 years so you cannot access it I suggest you just keep a track on this ETF from time to time. Should it reach a point where you are uncomfortable with the price or the difference between price and stated NAV, then sell.
More likely the ETF operators themselves may decide its not doing well enough to keep running in which case they will shut it down and return money. And as is the way, before that happens the price will start to fall (unless its believed that the NAV that will be realised is much higher than the share price in which case the shares will rise on the rumour.

[Deleted User]

The NAV should equal the ETF price though? If the ETF is holding 100% of the underlying stocks, this should be the same as the NAV of the underlying stocks