Buy Capital Gearing Trust?

mears1

aroominyork said:

This week I sold my CGAR (Acc) holdings and bought CGT. I then noticed a hidden cost in the difference between these two funds which I had not considered. Next week CGT goes ex-dividend so, if I reinvest the income in CGT, I will pay the spread and stamp duty on the amount of my holding which I essentially have to re-buy. It's not tragic but it's something to be aware of.

Novice hungry to learn from you. Why did you sell your CGAR, and rebuy CGT, when they are basically the same and CGAR ongoing cost is cheaper?

Not clear exactly what ex-dividends mean so found this  https://www.dividendmax.com/united-kingdom/london-stock-exchange/investment-trusts/capital-gearing-trust/dividends. So if someone bought on 1st June, would they be getting the dividend, using this info for CGT?

Declaration date		30 May 2022 (Mon)
Ex-div date		09 Jun 2022 (Thu)

  Would 1st June not have been a good choice of buying as it would be better to buy after 9 June when the price of the stock or fund goes down? 

Would these dates be the same for CGAR? Can't find the info?

aroominyork

CGT, being a closed ended fund, can hold attractive but less liquid holdings which gives it the potential to have an edge. I hope it will outperform CGAR, on average, by about 0.5%pa. 

Anyone buying CGT before 9 June will get the dividend. It was announced (on 30 May) as 46p per share, so on the ex-div date the price of each unit will fall by that amount - because you will later get that 46p as a dividend. Hence my comment about the cost of reinvesting my own money.

CGAR pays its dividend in November.

JohnWinder

 I will pay the spread and stamp duty on the amount of my holding which I essentially have to re-buy. It's not tragic but it's something to be aware of.

This illustrates two of several reasons that would explain the finding that investors, on average, get lower returns than their portfolio would, and otherwise does, when it’s not interfered with.

“Since 1994, DALBAR's Quantitative Analysis of Investor Behavior (QAIB) has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds over short and long-term timeframes. These effects are measured from the perspective of the investor and do not represent the performance of the investments themselves. The results consistently show that the average investor earns less – in many cases, much less – than mutual fund performance reports would suggest.” https://www.dalbar.com/ProductsAndServices/AdviserSolutions

Like your bath soap when you handle it too many times, your investments can be made smaller by excessive handling.

aroominyork

Dabbling in response to changes in the market is of course dangerous - it plays into 'sell low, buy high'. But this is different; what you are essentially saying is that no-one should own a distributing IT unless they want to bank the income. That is clearly wrong.

masonic

For a long term holding, the payment of a one-off stamp duty charge of £5 per £1000 invested is going to be a very small part of the overall underlying costs. If held for a decade, the trust would need to have annual returns 0.05% greater than the open ended fund to break even. One would need to allow a little more to cover the spread.

The income now being paid out rather than accumulating may well be better off invested in a different holding - very likely so after the past 6 months where most other assets will have fallen, so this could be seen as a positive.

JohnWinder

Sorry if my (mis)understanding has resulted in an inappropriate comment. I think I’ve untangled it, try this: 

Aroominyork made an investment change that was disadvantageous to the extent of a buy/sell spread on a relatively small amount. I hope that’s a safe guess as I don’t have any idea how big her CGT holding is. Additionally, there was a disadvantageous stamp duty to pay, perhaps small.

The option was not to embark on this investment change at all.

When no option is being considered by someone receiving an IT distribution other than reinvest it, then buy/sell spread and duty costs are incurred. Perfectly fine, and unavoidable in the circumstances. I didn’t explicitly suggest that was a poor strategy, to reinvest distributions, nor do I think it is. I tried to say that changing horses (to a more expensive one!) that resulted in some unexpected costs is an example of how investors can shoot themselves in the feet, rubber bullets not withstanding.

masonic

JohnWinder said:

Sorry if my (mis)understanding has resulted in an inappropriate comment. I think I’ve untangled it, try this: 

Aroominyork made an investment change that was disadvantageous to the extent of a buy/sell spread on a relatively small amount. I hope that’s a safe guess as I don’t have any idea how big her CGT holding is. Additionally, there was a disadvantageous stamp duty to pay, perhaps small.

The option was not to embark on this investment change at all.

When no option is being considered by someone receiving an IT distribution other than reinvest it, then buy/sell spread and duty costs are incurred. Perfectly fine, and unavoidable in the circumstances. I didn’t explicitly suggest that was a poor strategy, to reinvest distributions, nor do I think it is. I tried to say that changing horses (to a more expensive one!) that resulted in some unexpected costs is an example of how investors can shoot themselves in the feet, rubber bullets not withstanding.

This is quite a long-running thread, and much has been deliberated earlier in the thread. One contributory factor in favour of the switch was the trust's discount control policy, discussed here, which effectively reduces ongoing costs vs the open ended version. Another was the difference in performance, discussed here. While there are no guarantees for the future, this will probably outweigh the disadvantageous stamp duty charge, which was expected on the fund switch, but unanticipated in relation to the income stream (if reinvested). If the reason for the switch was an effective reduction in ongoing charges and the prospect for better performance within the trust structure, then this unexpected cost won't have swung the pendulum very far at all.

JohnWinder

Thanks for the prompt to elaborate (and almost ‘correct’).
I wrote ‘this is how investors CAN shoot themselves…..’. It would have been clearer to write ‘this is how investors MIGHT TURN OUT to have shot themselves’, since we don’t know how this or other changes will turn out. At least I didn’t write ‘this is how aroominyork SHOT herself …..’
Dalbar does however say ‘be careful’.

aroominyork

Just to clarify, I moved a six figure sum from CGAR to CGT. I had not thought about the 'reinvesting dividends' cost but, as masonic says, it is a small issue; it would not have affected my decision.

Apart from a day out of the market there was no loss; if I had bought CGT for a short period of time and then switched to CGAR, there would have been a loss.

mears1

aroominyork said:

CGT, being a closed ended fund, can hold attractive but less liquid holdings which gives it the potential to have an edge. I hope it will outperform CGAR, on average, by about 0.5%pa. 

Anyone buying CGT before 9 June will get the dividend. It was announced (on 30 May) as 46p per share, so on the ex-div date the price of each unit will fall by that amount - because you will later get that 46p as a dividend. Hence my comment about the cost of reinvesting my own money.

CGAR pays its dividend in November.

Thank you for your clear answer. So nice to get a proper answer rather than a question to one's question!