Costs of holding a IT versus a fund?

TUVOK

For the basis of this query I have taken the BG Pacific Horizons IT and the BG Pacific Class B (ACC) for comparisons and have relied on the information for each from the HL platform.
I am aware of the benefits of holding a IT, such as the ability to use gearing, to be able to smooth out dividends over several years etc.

The costs for the BG IT is over 5 years based upon a £5K investment with a 5% growth is £562.58, the costs for the fund under the same criterion is £414-22 , a difference of £148-36, on average  a £29-67 pound each year saving on holding a fund.
Can I be pointed in to what benefits there are, apart from the few that I have listed above in holding the IT instead of the fund?

NedS

There are 3 separate charges you need to consider. The fund change documented on the fund fact sheet, which will be largely invisible to you as it is deducted from capital or income of the fund/IT without you seeing it. Then there are any dealing charges to buy the fund/IT. On HL funds are free to trade so no costs here. IT's cost £11.95 to buy/sell and there is 0.5% stamp duty to pay on purchases. Finally, there is HL's on platform fee to hold the investments. HL charge 0.45% per year for both funds and IT, but the max amount for IT's is capped at £200/year.

The main advantage in terms of fees comes for those holding more than £50,000 in investments as at this point the platform cap starts to take affect. For example, if you have a £300,000 SIPP in funds at 0.45% that's £1350/year to HL in platform fees verses £200 if you hold only ITs, ETF's and/or individual shares. However, these can be quickly offset if you plan on trading regularly as the 0.5% stamp duty each time you purchase will more than offset a whole year of platform fee at 0.45%. So for those who intend to buy and hold, purchasing IT's or ETFs will likely save a fair chunk per year in platform fees on HL's charging model, but if you like to sell everything at the first sign of trouble and buy it all back later, you are probably better off holding the funds and paying the platform fee, all else being equal.

TUVOK

Thank you for your very informative reply.
My costs in my HL Isa have risen sharply and I have spent the afternoon researching IT comparative funds to change to  from my existing funds.
It's a ticklish job and requires a lot of time , but hopefully I have found a few IT's I will be changing too.

NottinghamKnight

TUVOK said:

Thank you for your very informative reply.
My costs in my HL Isa have risen sharply and I have spent the afternoon researching IT comparative funds to change to  from my existing funds.
It's a ticklish job and requires a lot of time , but hopefully I have found a few IT's I will be changing too.

It may be much easier and more effective to change your platform than your underlying investments. 

TUVOK

Yes, I have thought of that.
HL certainly is more expensive at 0.45% for funds, but has always given me excellent service.
However I detect that the service is declining some what. I have just had to contact them over a fund class change which they only partly carried out leaving part of my holding in another class, also telephone waiting times are increasing.
I have been steadily increasing my IT holdings, so will carry on for the moment, the thought also of the change to another platform is not a pleasant one either.

Moe_The_Bartender

Another thing to bear in mind with ITs is the NAV. In the case of PHI, it is currently trading at  a premium of 11.5% so you would have to pay £1150 to purchase assets with a value of £1000. BG Pacific is of course the OEIC equivalent so you pay £1 for every £1 of assets. I hold BG Pacific but will switch to the IT if the premium comes down sufficiently.

Moe_The_Bartender

JamesRobinson48 said:

Moe_The_Bartender said:

Another thing to bear in mind with ITs is the NAV. In the case of PHI, it is currently trading at  a premium of 11.5% so you would have to pay £1150 to purchase assets with a value of £1000. BG Pacific is of course the OEIC equivalent so you pay £1 for every £1 of assets. I hold BG Pacific but will switch to the IT if the premium comes down sufficiently.

Thanks. Anyone happen to know (or even hazard a guess) why the market premium to NAV on PHI is currently so high, if a closely equivalent OEIC is available at nil premium?

Investor sentiment? The premium was about 20% only a month ago and has only diverged from the share price in the last year before which it averaged about 1%. I don’t know whether Baillie Gifford have a discount control mechanism but I certainly wouldn’t be buying at the current price.