Is there much difference between ETF's and Investment Trusts?

isayhello

I think I've been a bit overwhelmed with information while researching funds and trusts but I felt that ETF's and Investment Trusts are very similar, in that they both are bought and sold on the stock market, they both can invest into a sector or track an index.

Am I right in thinking that the main difference is that an Investment Trust is close ended and an ETF is open ended and that in an Investment Trust a fund can use gearing to ramp up gains and also hold back on dividends to use them for years when dividends aren't so good.

They seemed very similar so I wondered if I missed any major reason why one would be preferred over the other.

Alexland

ITs tend to be actively managed and ETFs tend to be passive (although there are some pretty wacky ones) and as such the costs for an IT tend to be higher and it can trade at a premium or discount to NAV depending on investor sentiment.
Also there's stamp duty on buying ITs similar to individual company shares. Compliant ETFs tend to be domiciled in Europe (Ireland, Luxembourg, etc) as the UK government once tried to collect stamp duty on UK domiciled ETFs so they chose to setup elsewhere.

tacpot12

Between you and Alexland you have understood the main differences between ITs and EFTs. I hold a mixture of both in my retirement portfolio. Overall I'm happy with both. During the Coronavirus pandemic, my IT holdings did manage to maintain their dividends more that the ETF did. Both bounced back with the recovery. 

isayhello

tacpot12 said:

Between you and Alexland you have understood the main differences between ITs and EFTs. I hold a mixture of both in my retirement portfolio. Overall I'm happy with both. During the Coronavirus pandemic, my IT holdings did manage to maintain their dividends more that the ETF did. Both bounced back with the recovery. 

Ok overall it doesn't seem like there is a major reason to prefer one over the other then.

dunstonh

isayhello said:

tacpot12 said:

Between you and Alexland you have understood the main differences between ITs and EFTs. I hold a mixture of both in my retirement portfolio. Overall I'm happy with both. During the Coronavirus pandemic, my IT holdings did manage to maintain their dividends more that the ETF did. Both bounced back with the recovery. 

Ok overall it doesn't seem like there is a major reason to prefer one over the other then.

They are clearly very different in terms of objectives.    Although usually the question is ETFs/ITs vs OEICs.

isayhello

dunstonh said:

They are clearly very different in terms of objectives.    Although usually the question is ETFs/ITs vs OEICs.

In what way, isn't the objective for both that the value of the fund goes up?

dunstonh

isayhello said:

dunstonh said:

They are clearly very different in terms of objectives.    Although usually the question is ETFs/ITs vs OEICs.

In what way, isn't the objective for both that the value of the fund goes up?

No.  The objective is to invest in a certain way in certain areas.   

tebbins

E.g. Personal Assets Trust is very different from an ETF that holds companies to do with computer gaming.

Thrugelmir

isayhello said:

dunstonh said:

They are clearly very different in terms of objectives.    Although usually the question is ETFs/ITs vs OEICs.

In what way, isn't the objective for both that the value of the fund goes up?

No one (hopefully) invests money to lose it. 

GeoffTF

ETFs are much more complicated beasts than ITs. Here is an overview of how ETFs work:

https://www.blackrock.com/au/intermediaries/ishares/authorized-participants-and-market-makers

Alexland

GeoffTF said:

ETFs are much more complicated beasts than ITs.

I'd argue ITs are just as complicated in other ways like digging through their annual reports to understand their borrowing arrangements, AGM and Q&A sessions with the board and manager, understanding why premiums or discounts may have developed, etc.