Investment trusts v OEICs

Aged

In practical terms, what difference does it make whether you have an investment trust in your pension portfolio as opposed to an OEIC? I understand a bit about the differences between them ie the structure, the pricing, how they're bought and sold etc. but is there any reason one would avoid ITs? Are they perhaps held as a more 'permanent' investment rather than OEICs, which are more easily traded?

Prism

I use them to invest in less liquid equities, property and infrastructure as they never have to sell the underlying holdings to meet redemptions like OEICs do. Otherwise it doesn't make much difference to me

ColdIron

There are quite a few differences between them. Gearing or borrowing, a board of directors to (theoretically) keep the fund manager in check and encourage long term thinking, the ability to smooth returns, pricing at a premium or discount so you can buy assets at less than their individual value

They often cheaper to hold as many platforms have low (capped) or no fees which can be a big plus for larger portfolios. However you sometimes but not always have to pay stamp duty on purchases

But I think the primary advantage of ITs is that they are closed ended. With an OEIC the manager has to buy and sell to match inflows or redemptions which can be problematic for illiquid assets. You can't sell a bit of a shopping mall and many assets that are infrequently traded cannot be sold (or bought) quickly if at all

Are they perhaps held as a more 'permanent' investment rather than OEICs, which are more easily traded?

Quite the opposite. OEICs sometimes have to close or shutter when there are high redemptions (a frequent occurrence with property funds) while ITs don't have to do anything at all and the shares are usually tradeable albeit at low values, but you are not trapped

This makes them particularly suitable for things like property, infrastructure, high yield bonds and private equity amongst others

but is there any reason one would avoid ITs?

If what you are looking for are large cap equities then, unless you have a lot of faith in a particular manager or style, most people might be better served by a cheap tracker

Albermarle

My impression is that IT's can be more volatile compared to a similar OEIC. If there is a market dip for example an IT's discount may grow , which amplifies the drop during the initial part of a market downturn . That's what seems to happen anyway, and I believe some cleverer market players than me  have trading strategies based on this tendency of IT's to overshoot the general market moves.

LHW99

You are generally able to get a price at the time you want to trade with IT's. Whereas with OIEC's you get the price at the next set point after your order is taken, often 24 hours or more away, so you can't tell exactly what price you'll pay, or sell at.

ChilliBob

Stamp duty is due on UK ITs, for example SMT, but not on offshore ones, eg HVPE.

It's often said that OEICs are more foolproof than ITs - does that current discount (or even premium!) represent a good deal for example?

I own both for different reasons, personally if I can get the OEIC I tend to prefer to due to no stamp duty.

Often an IT has a, similar OEIC, as highlighted on the CGT thread - Trojan X OEIC vs PNL IT. So yiu can choose what suits. Sometimes there just isn't the choice so you have to go for what you want. 

Thrugelmir

Horses for courses. The growth and range of ETF's must be slowly eroding the market for many OEIC's. 

Audaxer

One other difference is that OIECs are covered by the FSCS up to £85k, whereas ITs are not covered. The risk however is said to be fairly low, for example if you were to lose some of your OIEC investment because of a major fraud in the fund house.

Aged

ChilliBob said:

Stamp duty is due on UK ITs, for example SMT, but not on offshore ones, eg HVPE.

It's often said that OEICs are more foolproof than ITs - does that current discount (or even premium!) represent a good deal for example?

I own both for different reasons, personally if I can get the OEIC I tend to prefer to due to no stamp duty.

Often an IT has a, similar OEIC, as highlighted on the CGT thread - Trojan X OEIC vs PNL IT. So yiu can choose what suits. Sometimes there just isn't the choice so you have to go for what you want. 

Based on what you've said here, my feeling is that it's safer for a novice investor (ie me!) to stick with OEICs. I was considering adding some 'wealth preservation' funds to my portfolio but I thought that they only came in the form of ITs.

Aged

Thrugelmir said:

Horses for courses. The growth and range of ETF's must be slowly eroding the market for many OEIC's. 

I haven't looked at ETFs, as they seemed to me to be a bit more complex than OEICs to buy and sell.

Thrugelmir

Aged said:

Thrugelmir said:

Horses for courses. The growth and range of ETF's must be slowly eroding the market for many OEIC's. 

I haven't looked at ETFs, as they seemed to me to be a bit more complex than OEICs to buy and sell.

They are traded just like shares. Couldn't be simpler and cheaper. Hence their appeal. Though not for the unwary. The usual caveat of fully understanding of what are investing in still applies.