Scottish mortgage investment trust

AlanP_2

LarryR wrote: »

That's the bit that confuses me - if I buy it as a stock, then how would I be affected by the OCF? Surely I buy it as a stock, at a price, place it in my ISA and that's it - price goes up or down (hopefully up) - and I sell it at some point in the future and realise the gain/loss, like any stock?

ITs like SMT are essentially, in a simplistic way, a "company" who's business / product is investment so they charge in a similar way to an OEIC i.e. a percentage of assets - that covers the costs of running the company.

They don't have a product to sell in the same way as a traditional company that makes its money by buying / making widgets at lower cost and selling them for a higher cost.

jimjames

LarryR wrote: »

Thanks for your reply, that does explain it and I kind of suspected it, but what threw me was that on the telegraph page it showed "OCF: 0.37pc" how could that be with a stock?

It would definitely be worth doing some more research before you commit money to SMT or indeed any other investment trust. An IT is a company that buys shares in other companies for investment and is then traded on the stock market in it's own right. There are fees for managing the shares held by the IT which is the OCF figures shown.

The value of the IT can vary and doesn't always reflect the value of the underlying shares so can trade at a discount or premium. Sometimes the discount or premium can be significant, with WPCT at the moment the discount is around 50%, other ITs are at a premium such as LTI over 35% premium.

If an IT goes out of favour then the premium can evaporate or can drop to significant discount even if the underlying shares don't move at all. This can add to the risk of holding but can also improve returns if you buy at a discount that narrows.

One advantage of ITs is that they can hold shares without the worry of needing to sell to fund redemptions from investors, something that caused problems with Woodford funds. The shares are traded on the stock market so you can buy & sell like any other share.

Albermarle

Another point about Investment trusts that is different to OEICS is that some (all?) are allowed to borrow money to buy investments . So the Trust can have a level of gearing up to a fixed maximum if they think it would benefit the Trust performance at any particular time .
Also their OCF's tend to be a little lower than similar OEICs and some platforms charge less for holding IT's compared to OEICs
O

ne advantage of ITs is that they can hold shares without the worry of needing to sell to fund redemptions from investors,

This makes them especially suitable for actual real property related investments .

Ciprico

...a way to think of it

With a tracker/fund, if you invest £1000 - the owners have to go out and buy £1000 worth of whatever they invest in. So the total value of the fund divided by number of shares will always equal the cost of the units/shares (close ended)

With an Investment Trust (ie SMT) - if you buy £1000 shares on the market, that's it, you own a fraction of the company.

Just like if you bought a £1000 of Tesco, they won't immediately go out and buy more stock.

Some of these Investment Trusts have been around for 100+ years - look up Scottish Mortgage on Wiki if you're interested in history, they've survived two World Wars and all the various financial crises over the last century...

Both types have been around for a long time.

With Investment Trusts there is no direct connection between asset value and share price.

Monks are at a premium of 3.5%, so your effectively buying £100 of underlying shares for £103.5

SMT are -0.1% NAV - so buying £100 of the underlying shares costs just under £100.

Obviously a negative NAV is better - but if too negative, look carefully why

Woodfords PC Trust is -50%, so you would be paying £50 for £100 worth of underlying stock, a bargain if you believe in the companies the trust has bought into....