Perpetual Income Acc Fund or Edinburgh Investment Trust?

moneylover · 6 November 2011 at 1:05AM

I am debating whether to buy Invesco Perpetual Income Fund or the Edinburgh Investment Trust which is more or less a mirror investment.

One attraction of the fund for me is that I can have accumulation units which means I am re-investing dividends immediately at no cost. A disadvantage is that I cannot see what price I am buying in at (for example the Perpetual Income Accumulation Fund went up 21p on Friday which seems a lot seeing as stock markets didn’t move much between Wed and Fri) And you cannot see historical prices on the web so far as I can see so I feel I am buying blind.

So am now trying to look at two other things that will affect my decision – the management costs and the effect of premium if I buy the trust. I need some help here.

First of all the premium – am I right at thinking this is currently .79? http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITEDIN&univ=T
I do not understand how it is determined and how or whether it affects or is affected by the share price. The current dividend is 4.3% but effectively mine would be less because of the premium – how do I do the calculation please?

Secondly, the charges. Everything I read calculates charges to be lower on a Trust than on a fund. But are rebates such as HL gives ignored in this calculation? The cost of the fund is an annual 1.5% management charge (or should I be looking at the TER which is 1.67% -this latter fig I don’t understand). http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/invesco-perpetual-income-accumulation/
For the Edinburgh Investment Trust I would have dealing costs that I understand. The management charge is.6% but there is a 1% management charge in certain situations which I presume kicks in some years as you can see from the factsheet above. If this is a regular occurrence (I don’t know) then there is no effective difference between annual charges.

If anyone can answer my questions I would be very thankful as I am still finding my way to understanding investment trusts and obviously I (and others who might be struggling) can apply the answers when comparing any other mirror investment trust and fund.

deadpeasant · 6 November 2011 at 2:55AM

I'm looking forward to replies from more experienced investors than myself, but I hold both the fund (HL) and the IT (interactive investor, whose reinvestment charge of 1% of the divi doesn't seem a lot). I confess I'm not sure what you mean by not being able to see historical prices of the fund on the web.

Incidentally, are they true mirrors? There seems to be a fair bit of divergence when you plot them.

The IT's premium. There's a clear explanation of the premium/discount thing on the Monevator blog:
http://monevator.com/2010/08/20/investment-trust-discounts-and-premiums/
In a nutshell, an IT's shares may for various reasons be valued above or below the value of the IT's underlying assets; if above, the difference is a premium, and if below, the difference is a discount. If equity income is the flavour of the month and Woodford is the go-to guy for equity income, his IT's shares can command a higher price than its underlying holdings are 'objectively' worth.

Re the Edinburgh IT's premium, you can currently find differing figures. The share price is 469.40p but different sites give varying figures for the NAV (value of the underlying assets), resulting in different premiums. Trustnet currently gives an estimated NAV of 465.73, resulting in a premium figure of +.79. But there are lower NAVs shown on Morningstar, ft.com and theaic.co.uk, resulting in premiums of about +3.5. Meanwhile citywire gives a premium of +.9. I don't know why the estimated NAVs vary so much, but when I bought into the IT I did so when it was at a slight discount. +3.5 looks high to me (an overvaluation of the IT's shares relative to its underlying assets).

Others will explain HL's charges better than I can, but I think they do provide a service for their money. One thing that I like about holding funds with HL is that I can switch between them without dealing charges. For example, after the August crash I switched money from some of my booming gilt funds into a range of bargain-basement equity funds, all without dealing charges.

Hope this helps somewhat.

Banderman · 6 November 2011 at 9:49AM

Buy neither. They're both rip-offs. Cut out the fatcat middlemen who buy all the same stocks and buy Shell, Glaxo, Severn Trent, etc. yourself. And save yourself 1% a year.

Linton · 6 November 2011 at 12:12PM

Banderman wrote: »

Buy neither. They're both rip-offs. Cut out the fatcat middlemen who buy all the same stocks and buy Shell, Glaxo, Severn Trent, etc. yourself. And save yourself 1% a year.

It rather depends on how much the OP has to invest. If it's £40K, then I would tend to agree with you as one could spend say £2K on each of 20 dividend paying shares. However, if the OP is talking about an investment of less than say £10K then one could not efficiently buy sufficient shares to provide the necessary diversification.

Another factor is that the fund does have some investments outside the UK, which could be rather difficult for the average small investor to duplicate.

atush · 6 November 2011 at 1:56PM

Not to mention the higher dealing charges involved with buying so many stocks over the dealing charge and SD for one trust?

Ark_Welder · 6 November 2011 at 2:29PM

Nor mentioning the fact that share switches that involve direct holdings could trigger CGT for an individual, whereas those carried out within a fund do not.

inflationiscoming · 6 November 2011 at 2:40PM

http://investor.invescoperpetual.co.uk/portal/site/ipinvestor

you can see the historic prices of the invesco perpetual fund through their website

BLB53 · 6 November 2011 at 3:07PM

The current dividend is 4.3% but effectively mine would be less because of the premium – how do I do the calculation please?

The way to work out the dividend yield is to take the total dividends paid for the year and express this as a percentage of the current share price.
Total paid for the past 12m is 21.73p (includes special divi last November). Current SP is 470p so historic yield is currently 4.6% or 4.4% excluding the special divi.
Leaving aside any special divi, I expect dividends to be increased to around 23p for the coming year, which will give a forward yield of 4.9%.
So long as Woodford is at the helm, I expect the IT will remain at a premium -he has a very good track record.
For my money I would go for Edinburgh, but I don't have much experience of dealing in OEICs so cannot really comment on the other option.

competitionscafe · 6 November 2011 at 4:50PM

moneylover wrote: »

For the Edinburgh Investment Trust I would have dealing costs that I understand. The management charge is.6% but there is a 1% management charge in certain situations which I presume kicks in some years as you can see from the factsheet above. If this is a regular occurrence (I don’t know) then there is no effective difference between annual charges.

There is a performance fee on top of charges, as follows:

"Performance Fee: If the NAV out-performs the FTSE All-Share Index (Total Return) by 1.25% per annum on a three year rolling basis, Invesco Perpetual will additionally receive a performance fee of 15% of the amount of the above-target out-performance, up to a maximum of 1% of net assets in any one year."
From: http://ww2.bestinvest.co.uk/funds/fmpro?-db=webprices.fp5&-lay=allfields&-format=factsheet.htm&investment_codename==EDIN&-find

Morningstar: [URL="http://tools.morningstar.co.uk/uk/cefreport/default.aspx?tab=11&SecurityToken=F0GBR051V5]2]0]FCGBR$$ALL&Id=F0GBR051V5&ClientFund=0&CurrencyId=GBP"]Edinburgh Investment Trust fees[/URL].

http://investmenttrusts.invescoperpetual.co.uk/portal/site/iptrust/investmentrange/investmenttrusts/edinburgh/

The trust is not an exact mirror:

"The underlying portfolio is not an exact mirror of his open ended fund, but is essentially a carve out of his larger company ideas - the fund focusing primarily on FTSE 100 and top end FTSE 250 stocks. "
http://www.bestinvest.co.uk/article/7655/Edinburgh-Investment-Trust-new

http://markets.ft.com/research/Markets/Tearsheets/Holdings-and-sectors-weighting?s=EDIN:LSE

The differing figures on the premium probably relate to published and estimated NAV or some of the figures may be out of date.

Morningstar gives a last actual NAV and an estimated NAV with a premium of 3.24%

The HL rebate on Invesco Perpetual Income Acc is 0.25% which is around half of their trail commission. A full rebate platform should therefore give you 0.5%: eg: http://www.cavendishonline.co.uk/investments/isas-oeics/fidelity-fundsnetwork/fund-discounts/?trans=ISA%20Buy&prov=INVESCO%20PERPETUAL or http://www.alliancetrustsavings.co.uk/pdf/list-of-funds.pdf?

If you frequently trade though then HL has no switching fees whereas Fidelity via Cavendish for example will charge a 0.25% switching fee. So if you switch funds more than once a year HL costs less but if you hold them for longer than a year the Fidelity/Cavendish option is cheaper.

moneylover · 6 November 2011 at 7:59PM

thank you all - have acknowledged in usual way.
I wish I knew how to highlight peoples answers more than one section at a time in a post but I dont - so this may be a bit muddly but please bear with me.

First of all Invesco Perpetual Income Acc fund....I do not understand how a price is arrived at ( noon each day) - for a fund can anyone explain - is it based on how many people have bought in or sold the previous day and is its only relationship to the stockmarket that people who are worried about holding shares are more likely to switch to fairly safe income producing funds such as Perpetual Income when the news is consistently bad.

One poster says that you can see the historic prices for the Perpetual High Income accumulation units on their website, but I can't - only a graph. I was looking for something similar to what you find on Yahoo Finance.

Moving on to the Trust, I presume that the premium I have to trust is the one on the Invesco website which is 4.07 http://itinvestor.invescoperpetual.co.uk/portal/site/ipitinvestor/prices/ .

Whichever website you look at the premiium the interest rate seems to be the same more or less. But the point I was trying to make was that I wont really get that as my £3000 is not buying at a nil discount/premium. I will get less than what £3000 would buy me if it just depended on share price. So how do I work out what I would REALLY get if say the interest was 4.4% for example. No one has answered that for me - probably I didnt/am not expressing the question very well.

Also the question about premiums/discounts. I dont understand why they are there - they must skew the share price which is what you wouold normally expect to reflect supply and demand. So how are they worked out?

The other question that was not answered re the Trust was about the performance fees - how likely are they to kick in? "If the NAV out-performs the FTSE All-Share Index (Total Return) by 1.25% per annum on a three year rolling basis, Invesco Perpetual will additionally receive a performance fee of 15% of the amount of the above-target out-performance, up to a maximum of 1% of net assets in any one year." I dont know enough about the FTSE all share index to make a guess maybe someone who has held this trust for a while could say. Perhaps the amount that they would take isnt worth worrying about but if they regularly take a fair wack then maybe better off with the Invesco High Income Fund which doesnt have this kickback.

Many many thanks - as I said before, I will be able to apply the answers to other situations so all info is useful. Buying shares is such a doddle in comparison but I dont have the money for too many or the risk appetite for too much of my portfolio

BLB53 · 6 November 2011 at 8:25PM

If you feel like considering other IT options, here is an article from Fool. A bit dated now but search the site for regular updates if interested

http://www.fool.co.uk/news/investing/investing-strategy/2010/03/09/the-lazy-investors-guide-to-growing-income.aspx?source=isesitlnk0000001&mrr=1.00

Perpetual Income Acc Fund or Edinburgh Investment Trust?

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