Investing in a small fund OEIC

londoninvestor

newbinvestor wrote: »

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?

OEICS have no secondary market - it's always the fund manager who sells to you and buys from you.

If (netted across all investors) more are selling than buying, then yes the fund manager will need to liquidate stocks to generate the cash.

In very extreme situations (as you may have seen with Woodford Equity Income), this can result in a delay, possibly indefinite, in getting your money out. But that's very unlikely in a fund that holds liquid underlying shares. (Woodford's problem is his large investments in illiquid companies.)

londoninvestor

newbinvestor wrote: »

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

ETFs are different from OEICs, which your original question asked about. ETFs (as well as investment trusts) have a secondary market, ie shares are traded between one holder and another.

You're correct in general that the ETF price won't diverge far from the underlying, because of the arbitrage that Authorized Participants do.

https://www.investopedia.com/terms/a/authorizedparticipant.asp

tin586

While nothing is certain in the investment world, you can’t go far wrong with an ETF tracking a broad mainstream index like the FTSE 100 or the S&P 500.

Even in a severe downturn there will be plenty of vultures ready to take it off the hands of distressed sellers.

In a ‘normal’ situation, the ETF should always reflect the underlying NAV because so-called Authorised Participants will arbitrage away any difference (you will have to google as I can’t post links).

Where you need to be careful is with more exotic ETFs where the liquidity of the ETF can mask the illiquidity of the underlying holdings.

Personally I am relaxed about a miainstream ETF that is small, if from a reliable house like Legal & General (I’m trying to see which broker does those, as the costs are very competitive). If it becomes unviable, they will just liquidate it and return the NAV of the underlying.