Portfolio Volatility Spreadsheet

jon3001

cepheus wrote: »

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.

You can't get a real-time quote for a UT. They get priced once a day and when you put your order through you don't really know what price it'll go through at. This makes them unsuitable for traders.

munk

Thanks for posting that cepheus.

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 is exactly what I was getting at when I said:

You might pay slightly more than the bid price though (even if your initial charge is 0%) because of creation costs, but for that fund I've not paid more than 0.25% on top of the bid price.

As your reply from HL illustrates, even if the initial charges you pay because of discounts is 0% on new new units in a fund, you may still pay a 'stealth initial charge' due to the difference between the bid/sell price and the creation price.

Meester - this is what I was talking about in the other thread as well - the Lloyds IPS thread:

Charging on investment funds is very opaque in general in my experience - there are even more pitfalls when you start talking about creation pricing for unit trusts/OEIC units/shares. The creation price is the price you pay per unit/share when you introduce new money into a fund. The creation price is often more than the advertised net asset value (NAV) price and introduces yet another stealth charge because of the costs involved in creating new units/shares in a fund.

Personally I find this very unfair - I think brokers like HL should advertise the current creation price alongside the current NAV for each fund. Even though the current creation price won't be the 'forward price' they pay, at least it gives an idea of what the diff is between NAV and creation price and allow the customer to know in advance roughly how much on top of the NAV they'll pay for new units/shares.

The difference between the creation and bid prices is effectively a stealth charge because one would assume that if the initial charge was 5% and the initial charge discount is 5%, then you would pay 0% initially when purchasing new units in a unit trust. However this isn't always the case because a lot of the time the creation price is greater than the bid price for a given fund. Hence as demonstrated in cepheus' reply from HL, on 19th March for purchasing new units in that Blackrock fund you'd be paying a 0.17% charge even though your initial charge was discounted down to 0%.

Of course in monetary terms all of this is by-the-by if the fund jumps 2% in a day - but the point is that this creation pricing charge is very well hidden from the retail investor in the small print and only comes to light if you look very closely at the figures and scrutinize your transactions. As I said on the other thread it amazes me that financial companies/brokers aren't required to state the creation price alongside the NAV/bid/offer prices when offering funds for sale. It seems like just one more way to nibble a few more crumbs away from the retail investor without them noticing.