OEIC Alternatives to IT's BNKR or FCIT

Audaxer

MichelleN said:

atush said:

Why not invest i the ITs?  i hold both.

Yes, it looks as if I will invest in a selection of global IT's as there appears to be no OEIC alternatives. Because its a fairly large sum of money I was hoping to find a suitable alternative to eliminate the stamp duty costs and avoid the extra risk of discounts/premiums and also in the case of FCIT the gearing.  

AJ Bell have ITs capped at £30 per year for platform fees within an S&S ISA, so worth considering for large buy and hold investments as funds are charged at 0.25% per annum.  After the one-off dealing and stamp duty costs there could be quite a big annual cost saving with ITs.

StellaN

The only other thing to consider with IT's is the shrinking of discounts over the past few years. As an example, only a few years ago BNKR & FCIT could be bought at 5-6% discounts and now they are trading at either a small premium or a very small discount so not as attractive for some investors. Along with this you have gearing to consider and the extra volatility associated with IT's compared to OEIC funds.

MichelleN

StellaN said:

The only other thing to consider with IT's is the shrinking of discounts over the past few years. As an example, only a few years ago BNKR & FCIT could be bought at 5-6% discounts and now they are trading at either a small premium or a very small discount so not as attractive for some investors. Along with this you have gearing to consider and the extra volatility associated with IT's compared to OEIC funds.

Thanks for your input. Yes, they are both currently trading at a small premium (1.7 & 1.4 respectively) but the share price has moved down over the past few days so I think it could be a suitable time to invest. 

bowlhead99

MichelleN said:

StellaN said:

The only other thing to consider with IT's is the shrinking of discounts over the past few years. As an example, only a few years ago BNKR & FCIT could be bought at 5-6% discounts and now they are trading at either a small premium or a very small discount so not as attractive for some investors. Along with this you have gearing to consider and the extra volatility associated with IT's compared to OEIC funds.

Thanks for your input. Yes, they are both currently trading at a small premium (1.7 & 1.4 respectively) but the share price has moved down over the past few days so I think it could be a suitable time to invest. 

As you'll be aware from your research, F&C IT contains a number of private equity holdings that are not listed on a stock exchange and not valued daily. For those values they're only practically going to get sensible valuation info a couple of months after a quarter end.

So if market crashes 10% in a couple of days because market participants don't want to pay the same price that they used to be willing to pay for companies, it's rational for F&C's share price to fall 10% too, but the F&C declared NAV would only drop in respect of its public listed holdings for which they can see a new lower daily published price on the various global stock markets, and not in respect of its few hundred million worth of private holdings which haven't been revalued yet. So the NAV drop would perhaps be less than 10%.

This will increase the apparent 'discount' or reduce the premium of what F&C says it's worth versus what you have to pay for a share of F&C, but is only due to the fact that they haven't booked the devaluation yet, so doesn't make it any more of a bargain than it was last week.

If course it might still be a relatively good time to buy because the market may recover in a month or two and you make better long term gains than if you had bought last week or this summer. They may never need to get around to booking a downwards valuation on the private holdings.  PE was under 10% of the F&C gross assets at the last count anyway. But be careful of such quirks, when doing your analysis.

A fund that holds private equity and has gearing facilities and can trade at a discount or premium can produce quite different results from a globally invested OEIC, which generally has none of those three features.  Not that F&C is a bad investment vehicle, just different.