Portfolio Volatility Spreadsheet

meester

cepheus wrote: »

Still very confused about this

This morning the Blackrock Alpha fund has a bid offer of 1.22/1.16 my broker is telling me this will be incurred plus any charge (0-5%) the broker will charge (in their case it is 1%). This suggests to me that if you bought and sold this immediately at best you would loose about 5% and 10% at worst. So considering it is a low volatility fund it doesn't seem suitable for anyone except those with a long term view!

Your broker is clueless. Suggest you go for a fund supermarket instead, or somebody that understands basic unit trust pricing.

The initial charge is 5%. The quoted sell price (1.22) includes the initial charge for Unit Trusts. They are quoted this way due to the historical (pre-fund supermarket) nature of UTs always paying commission, so they preferred to include it in the pricing.

The other thing is that they are not charging you 1%, they are giving you a discount of 4%. The difference is that they are charging you 1.22 * (100%-4%), rather than 1.22 * (100% - 5%) *1.01. The difference is slight, but it demonstrates their cluelessness.

You lose nothing by buying with someone like HL - 5% charge, 5% discount, so 1.22 * 0.95 = 1.16, you lose nothing. Witht hese guys you lose 1% day one.

cepheus

Thanks Meester

Unfortunately I'm trying to find a home for some of my ISA funds so it means moving some of it over, which may not be a bad idea.

munk

I would highly recommend HL cepheus for your funds, not sure how they compare for direct shares but their fund platform offers great discount rates, trail rebates and loyalty bonuses (well, best of all the sites that have a decent online portfolio management service - I think cavendish might be cheaper in terms of giving rebates but I heard their online services aren't great?).

cepheus

Well, I have just phoned HL and they say that the charge is normally on top of the bid offer spread, but this is fully refunded. In other words if I bought and sold the unit trust without any change in price I would incur a total loss of 1.22-1.16=0.06 per unit about 5%. He checked this with the Unit trust dealer and I explained the question clearly.

This is exactly the same story as the Selftrade unit trust dealer

I have just got a reply by mail from customer services Selftrade after my telephone call

The last indicative spread for BlackRock UK AbsoluteAlpha P Acc is bid 1.16 - 1.22 offer. This is approximately 5 % and cannot be reduced. Please be advised that the standard initial charge from the Fund manager is 5 %, however, the effective initial charge with Selftrade is only 1 %. I hope this helps.

meester

cepheus wrote: »

Well, I have just phoned HL and they say that the charge is normally on top of the bid offer spread, but this is fully refunded. In other words if I bought and sold the unit trust without any change in price I would incur a total loss of 1.22-1.16=0.06 per unit about 5%. He checked this with the Unit trust dealer and I explained the question clearly.

This is exactly the same story as the Selftrade unit trust dealer

I have just got a reply by mail from customer services Selftrade after my telephone call

The last indicative spread for BlackRock UK AbsoluteAlpha P Acc is bid 1.16 - 1.22 offer. This is approximately 5 % and cannot be reduced. Please be advised that the standard initial charge from the Fund manager is 5 %, however, the effective initial charge with Selftrade is only 1 %. I hope this helps.

Obviously a lot of clueless people working for these companies.

They are simply wrong. Unit trusts are sold at creation cost + charge. If that charge is discounted, it will be taken off the offer price. The charge is NOT on top of the offer price, it is included in it. For OEICs, the charge is levied on top of the price. But for UTs the charge is included already, and you can reduce the offer price by the amount of the discount.

Purchase:
Bought 08/02/2008 3,237.9910 @ 113.00p = £3,658.93

Currently:
BlackRock UK Absolute Alpha
Class P Acc 3,237.991 @ 115.80p = £3,749.59 +2.48%

I can 100% assure you, you will pay the bid price on this fund with full discount (or technically speaking, the offer price minus 5%, which is the same thing)

munk

The last indicative spread for BlackRock UK AbsoluteAlpha P Acc is bid 1.16 - 1.22 offer. This is approximately 5 % and cannot be reduced. Please be advised that the standard initial charge from the Fund manager is 5 %, however, the effective initial charge with Selftrade is only 1 %. I hope this helps.

I think this makes some sense though in a longwinded round about way - the selftrade guy is maybe telling you that usually you'd pay 5% initial charge but with Selftrade the initial charge is reduced to just 1%? No idea, never been with those guys.

As for your phone call with HL there's some confusion there, HL's initial charge on that fund is definitely 0%. You might pay slightly more than the bid price though because of creation costs, but for that fund I've not paid more than 0.25% on top of the bid price. Probably best to ask them via email next time then you can work out what it means at your leisure!

For the record - the emails I've had from HL have always been very clear and easy to understand, again would highly recommend HL.

moneylover

every time I think I might dip a toe into funds I realise I don't yet know enough. Was looking at the prices of this fund on HL this morning and sell is 115.70p and buy is 121.60p. The performance of the fund over the last 12 months is plus 11.57% - but what is this calculated on? If you had held this fund for the last 12 months and now wished to sell wouldnt you lose nearly half the rise in price because of the spread between bid and sell?

meester

munk wrote: »

As for your phone call with HL there's some confusion there, HL's initial charge on that fund is definitely 0%. You might pay slightly more than the bid price though because of creation costs, but for that fund I've not paid more than 0.25% on top of the bid price. Probably best to ask them via email next time then you can work out what it means at your leisure!

The cost is the Offer Price - the discount. I.e offer - 5% = 1.22 * 0.95.

No more, no less.

meester

moneylover wrote: »

every time I think I might dip a toe into funds I realise I don't yet know enough. Was looking at the prices of this fund on HL this morning and sell is 115.70p and buy is 121.60p. The performance of the fund over the last 12 months is plus 11.57% - but what is this calculated on? If you had held this fund for the last 12 months and now wished to sell wouldnt you lose nearly half the rise in price because of the spread between bid and sell?

Please read my previous posts in the thread.

You do not actually pay 121.6p to buy this fund. That is the official price you pay without any discount, inclusive of a 5% charge. HL has a 5% discount, so you pay 121.6 * 0.95 = 115.7p.

So, no, you do not lose anything.

The 11.57% growth is quoted bid-to-bid. So had you bought with full discount (as with HL), you would have 11.57% more now than you did then.

cepheus

This is a written reply to my second HL enquiry which generally confirms what munk and meester said

Unit trusts are dual-priced investments with both a bid (selling) and offer (buying) price, the difference between the two is known as the bid-offer spread. The bid-offer spread includes the initial charge and all costs to buy and sell a unit. The lowest price that a new unit can be purchased at is a separate creation price between the bid and offer prices. The creation price is the bid price plus any addition charges for creating the new units. With the full saving on the fund offered by Hargreaves Lansdown there would be no initial charge hence you would purchase units at exactly the creation price.

If you purchased a new unit in a Unit Trust with a full initial charge discount and then sold it the following day (assuming no price movement) the loss would be the spread between the creation and the bid price.

To give an idea of these figures the creation and bid prices for Blackrock absolute alpha on 19 March are as follows;

Creation price, 115.9 pence
Bid price, 115.7 pence

This corresponds to a total 'charge' or 'spread' of 0.17% which looks reasonable.

Anyone care to explain why people don't trade these regularily? As far as I can see UTs seem to pay something called Stamp Duty Reserve Tax (rather than the plain .5% stamp duty) which seems to come out of the fund, although I am not sure how this would affect active trading for an individual.