Capital gain rather than interest

Voyager2002

I would like to earn modest capital gains this financial year rather than interest. My plan to do so is to buy those investment trusts that people often use for income, buying the day after they go ex-dividend (so the price should dip to reflect the dividend) and selling shortly before the 'date of record' for the next dividend. Is this likely to work, giving a real but reasonably low risk? And if so, could you suggest the investment trusts that fit my objective?

With thanks.

Mikeeee_2

What do you think will happen with market sentiment, fund performance, the difference spread between the bid/ask price and the value of the dividend cash being distributed out of the trust?

If it were as easy as you suggest, everyone would be doing it.

Ciprico

What are you looking to achieve.. ?

If you just want "something" to produce guaranteed capital gains, short durations, low coupon gilts might be a safer option.

(Also if that is your motivation, you don't pay CGT on gilts anyway, so you avoid the CGT tax-free threshold).

If you really want to mess with investment trust timings, city of London IT provide a reasonable dividend and have been around for a long time so probably as good as any for that purpose...

Hoenir

Voyager2002 said:

My plan to do so is to buy those investment trusts that people often use for income, buying the day after they go ex-dividend (so the price should dip to reflect the dividend) and selling shortly before the 'date of record' for the next dividend. Is this likely to work, giving a real but reasonably low risk? 

Statistically markets rise around 54% and fall 46% on trading days annually. Possibly why no one has bothered to promote this activity previously. 

Might as well buy short dated low coupon UK Gilts. CGT free. 

aroominyork

Your question is not clear. Are you saying you want to earn savings-type income but at 10% CGT rates rather than 20% income/interest rates? Or are you looking for a higher level of risk? If the former (before the budget potentially equalises the rates) then CSH2 "aims to achieve short term returns higher than the benchmark rate Sonia" and is taxed as capital gains. 

ColdIron

Not sure what you are trying to achieve. The problem is that by tying yourself to a short term fixed date you could end up with a capital loss and even at IWeb it would cost you a tenner and stamp duty. If you decide not to sell you have a dividend

You could avoid market timing and just settle for regular dividends, less than half the tax (if that's the aim) and a (small) additional £500 allowance

wmb194

Voyager2002 said:

I would like to earn modest capital gains this financial year rather than interest. My plan to do so is to buy those investment trusts that people often use for income, buying the day after they go ex-dividend (so the price should dip to reflect the dividend) and selling shortly before the 'date of record' for the next dividend. Is this likely to work, giving a real but reasonably low risk? And if so, could you suggest the investment trusts that fit my objective?

With thanks.

You mean dividends? I suppose in theory this might work if all things remain equal but the problem is that things don't remain equal.

City of London (LSE:CTY) is a popular one and in the past year or so in the first period 08/23 to 11/23 you'd have made a capital loss and then made it back plus some in the following periods, but this is in a market that's beginning to warm to the FTSE350 again. 

Remember that each time you buy a UK domiciled IT like CTY you'll hit yourself with 0.5% Stamp Duty and if you're doing this every quarter for years on end it'll add up. You could avoid this by focusing on the ITs domiciled abroad e.g., those in Jersey and Guernsey but you shrink your options.

Edit: There's also the bid/offer spread to consider - usually 0.5p/1p with CTY - and brokerage fees, but these days you can eliminate these with the likes of Freetrade, Trading212 and CMC Invest.

poolboy

Cty fan here, I keep thinking of selling some and buying back, today cty touched 442 so a pretty good high, however, they pay well so I rather like the hassle free income.  I reckon as interest rates fall investment trusts should become more popular.  With investment trusts you don't get the volatility of other shares, being a basket of shares.

silvercue

Stock prices don't always drop the day after ex dividend like that, certainly not enough to reliably justify the spread variance when you buy/sell for relatively small amounts (in my experience anyway).   
Timing the market is always far more difficult than it sounds on paper.  You might be better buying the day before ex dividend, taking the dividend and then selling, though still not a strategy I would base my investing/trading on either.