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  • FIRST POST
    • capital0ne
    • By capital0ne 10th Jun 19, 5:22 PM
    • 764Posts
    • 376Thanks
    capital0ne
    ITs or Individual Co. Shares?
    • #1
    • 10th Jun 19, 5:22 PM
    ITs or Individual Co. Shares? 10th Jun 19 at 5:22 PM
    Would you buy FGT - Finsbury Growth & Income IT instead of holding individual shares? Namely Diageo, Unilever which I do hold and I like the others in FGT top 10?

    Ditto for Merchants IT - if you hold RDSB, GSK, HSBC, IMB, and BA. individually.

    Both of these ITs are at a low premium and have low charges.

    Thoughts please
Page 1
    • Herbalus
    • By Herbalus 10th Jun 19, 5:34 PM
    • 2,373 Posts
    • 2,082 Thanks
    Herbalus
    • #2
    • 10th Jun 19, 5:34 PM
    • #2
    • 10th Jun 19, 5:34 PM
    FGT is at a 0.58% discount - is that as small as a rounding error on things like these?

    Also, and if this question is naive it's because I don't own ITs or individual shares, you pay a management charge on both ITs when if you just like the individual shares, why not buy those and not pay a management charge at all?
    • capital0ne
    • By capital0ne 10th Jun 19, 5:43 PM
    • 764 Posts
    • 376 Thanks
    capital0ne
    • #3
    • 10th Jun 19, 5:43 PM
    • #3
    • 10th Jun 19, 5:43 PM
    FGT is at a 0.58% discount - is that as small as a rounding error on things like these?

    Also, and if this question is naive it's because I don't own ITs or individual shares, you pay a management charge on both ITs when if you just like the individual shares, why not buy those and not pay a management charge at all?
    Originally posted by Herbalus
    Good point, my thinking as well!

    But, if you own three or four constituents and are reinvesting automatically, then you save on 6 or so dealing charges per year.

    Swings and roundabouts
    Last edited by capital0ne; 10-06-2019 at 5:46 PM.
    • bowlhead99
    • By bowlhead99 10th Jun 19, 7:53 PM
    • 9,356 Posts
    • 17,014 Thanks
    bowlhead99
    • #4
    • 10th Jun 19, 7:53 PM
    • #4
    • 10th Jun 19, 7:53 PM
    There are probably three main advantages to using investment trusts over individual shares.

    One: diversification. Your risk is spread over a broader set of assets than you might be bothered to buy yourself. For example, Merchants has 45 holdings. If you have £100k to invest, to get 45 holdings you might put £3k each in your favourites and £2k in your 'quite like' and £1k in your maybes. The dealing costs and income reinvestment costs would add up and make those £1k holdings prohibitively expensive to bother with. So, you would end up not bothering and be more exposed to the larger holdings.

    You probably have more than £100k to put to work in a portfolio but the above is just an example - there are also plenty of other different regions to cover with the rest of your millions (as Merchants is UK stock exchange focused). Finsbury is more concentrated than Merchants and is quite high conviction in terms of its top ten holdings as a proportion of its total portfolio, but it is still offering a convenient exposure as a one stop shop.

    Two: tax efficiency. The manager can churn the portfolio as often as he likes if he thinks that a particular company is no longer a good value hold, but you aren't exposed to gains taxes when he sells (e.g.) Burberry to buy more Schroders. Only when you exit the collective vehicle itself does your CGT get calculated so you can compound the returns gross within the investment vehicle.

    Three: research / monitoring, admin, handling of corporate actions, and investment selection is outsourced and the costs of it comes out of your pre-tax investment income or gains rather than out of your after-tax returns.

    You may not be a fan of buying in paid advice for investment ideas and investment selection (some people like to do it all themselves as a hobby) but using an investment trust gets you a nice broad exposure to markets compared to what you might make for yourself with individual heavyweight picks, and it would take a lot of work and resources to properly cover (investigate /research and monitor) the thousand or so investible shares on the UK markets let alone the overseas ones. It's quite efficient to roll that up into a central cost shared across thousands of investors on a collective basis. So if the operating and transaction costs (including management fees) are not massive, why not let someone else do it for you.

    So yes I do prefer using a collective investment scheme to buying all the components myself. Though if I do really like a particular share I might hold it myself direct, even though someone else has already bought a bit of it for me. For example I have exposure to Chinese business Tencent in a couple of collectives, but I really like it so I also have about 600 shares held directly (well, across my SIPP and ISA). If I only wanted £1k of it, it would be inefficient to buy directly (listed in HK, high telephone dealing charge with my broker) so would make more sense to just buy £20k of (say) Scottish Mortgage and trust their judgement that the other £19k was going to be in decent picks too.
    Last edited by bowlhead99; 10-06-2019 at 8:05 PM.
    • dividendhero
    • By dividendhero 10th Jun 19, 8:38 PM
    • 2,144 Posts
    • 3,912 Thanks
    dividendhero
    • #5
    • 10th Jun 19, 8:38 PM
    • #5
    • 10th Jun 19, 8:38 PM
    I prefer IT's over individual companies, for the reasons put so eloquently by bowlhead99.

    On top of the reason he/she stated, there are many great companies outside the UK. Holding these directly is a pain, really easy if held via MYI or HINT etc
    • Tom99
    • By Tom99 11th Jun 19, 3:52 AM
    • 4,918 Posts
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    Tom99
    • #6
    • 11th Jun 19, 3:52 AM
    • #6
    • 11th Jun 19, 3:52 AM
    I have tried individual share collections on 3 occasions in the past. Two lots a 10 shares and 1 lot of 20 shares.
    The overall performance was in each case an overall profit but not very different from buying 1 or 2 funds.
    However I found the disappointment in a share that lost value greater than the joy in one that had increased in value - irrational I know.
    Secondly after a while you are left with a potential re-balancing problem, your best share might have doubled in value whilst the worst is half what you paid.
    • Reaper
    • By Reaper 11th Jun 19, 8:01 AM
    • 6,686 Posts
    • 5,040 Thanks
    Reaper
    • #7
    • 11th Jun 19, 8:01 AM
    • #7
    • 11th Jun 19, 8:01 AM
    In the case of Merchants Trust they have increased the dividend every year for the last 36 years. So if the idea of a pretty reliable 5.3% (at the time of writing) yield appeals to you then the IT is the way to go.
    • EdGasketTheSecond
    • By EdGasketTheSecond 11th Jun 19, 8:45 AM
    • 1,253 Posts
    • 639 Thanks
    EdGasketTheSecond
    • #8
    • 11th Jun 19, 8:45 AM
    • #8
    • 11th Jun 19, 8:45 AM
    With individual shares you have the possibility to buy/sell as they fluctuate. The IT version may not move in price while its constituents do. So you can trade those sectors currently in favour against those not in favour until sentiment swings the other way then rinse and repeat. It does require a very hands-on approach though.
    • Albermarle
    • By Albermarle 11th Jun 19, 9:09 AM
    • 1,564 Posts
    • 997 Thanks
    Albermarle
    • #9
    • 11th Jun 19, 9:09 AM
    • #9
    • 11th Jun 19, 9:09 AM
    It does require a very hands-on approach though.
    Basically a full time job if you take it seriously enough, and not what most ( even informed ) investors want to be spending too much time on.
    The other point is that not all IT's are invested only in shares and some have a more complex portfolio of investments.
    • capital0ne
    • By capital0ne 11th Jun 19, 5:42 PM
    • 764 Posts
    • 376 Thanks
    capital0ne
    Thanks everyone, I'm in the gradual process of selling the odd individual share and investing in an IT that holds the same share for example FGT for my holdings in DGE and ULVR, MRCH or JCH for my holdings in RDSB, BP., GSK and HSBA and so on.
    • EdGasketTheSecond
    • By EdGasketTheSecond 11th Jun 19, 5:51 PM
    • 1,253 Posts
    • 639 Thanks
    EdGasketTheSecond
    Thanks everyone, I'm in the gradual process of selling the odd individual share and investing in an IT that holds the same share for example FGT for my holdings in DGE and ULVR, MRCH or JCH for my holdings in RDSB, BP., GSK and HSBA and so on.
    Originally posted by capital0ne

    Sounds a good plan; pay someone to do what you already had for free!
    • george4064
    • By george4064 11th Jun 19, 5:57 PM
    • 1,309 Posts
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    george4064
    Sounds a good plan; pay someone to do what you already had for free!
    Originally posted by EdGasketTheSecond
    I don't think that's a fair assessment of what Capital0ne is doing here.

    He is effectively switching out a few individual shares that are in the respective IT top 10 holdings, for a fully managed diversified (relatively speaking) investment trust. The various advantages of holding the IT vs holding a number of the underlying holdings individually have already been stated in previous posts.

    Another advantage to holding the IT vs a number of the underlying individual shares is that the IT is able to hold back cash reserves. Which the IT will be able to fall back on when underlying dividends fall (or stop) and they are able to maintain their dividend. Albeit individual companies are able to do this to some extent too, you'll get a much better 'dividend reserve fund' with an IT than an underlying share in the IT portfolio.
    Last edited by george4064; 11-06-2019 at 6:00 PM.
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    • Linton
    • By Linton 11th Jun 19, 8:59 PM
    • 11,251 Posts
    • 11,661 Thanks
    Linton
    I have switched most of the 18 individual holdings that comprised close to 50% of my income portfolio to funds as I just did not have the time or concentration to keep on top of what was happening to the companies, let alone undertake the research needed to identify new candidates. 18 holdings is aclose to the minmum one needs to have reasonable diversity and to be able to accept the occasional failure.


    Overall I am expecting the funds to perform as well as the individual shares. Possibly a slight decrease in yield coupled with a decrease in losses due to company failure.


    One point I would make is that if one is after income dont focus purely on UK equity income. There are good dividends to be found in Europe and SE Asia. Some of the infrastructure funds look good to extract income from the USA where dividends are not easy to find. And then there are corporate and other higher risk bonds.
    • Audaxer
    • By Audaxer 11th Jun 19, 10:31 PM
    • 1,876 Posts
    • 1,177 Thanks
    Audaxer
    One point I would make is that if one is after income dont focus purely on UK equity income. There are good dividends to be found in Europe and SE Asia. Some of the infrastructure funds look good to extract income from the USA where dividends are not easy to find. And then there are corporate and other higher risk bonds.
    Originally posted by Linton
    It is also worth considering Global Equity Income funds in an Income portfolio. Although the yields are generally a bit lower than the UK at around the 3% mark, the two Global Equity Income funds I hold have produced a much higher Total Return than my UK Equity Income funds over the past couple of years.
    • atush
    • By atush 12th Jun 19, 2:26 PM
    • 17,954 Posts
    • 11,400 Thanks
    atush
    I prefer IT's over individual companies, for the reasons put so eloquently by bowlhead99.

    On top of the reason he/she stated, there are many great companies outside the UK. Holding these directly is a pain, really easy if held via MYI or HINT etc
    Originally posted by dividendhero
    I agree, and Finsbury is on my buy list
    • takesyourchances
    • By takesyourchances 12th Jun 19, 5:22 PM
    • 774 Posts
    • 523 Thanks
    takesyourchances
    Interesting read, I have a growing number of IT's which are starting to create a snowball effect of dividends after a few years and I am re-investing all the income and adding new capital. Outside of trackers / VLS, I am invested mostly in IT's now in my ISA and building towards an income stream along with compounding.

    I am heading to 40 years old this year, hopefully keeping to the plan will give me options at some point later in this new approaching decade and beyond.
    • Audaxer
    • By Audaxer 12th Jun 19, 7:16 PM
    • 1,876 Posts
    • 1,177 Thanks
    Audaxer
    I am heading to 40 years old this year, hopefully keeping to the plan will give me options at some point later in this new approaching decade and beyond.
    Originally posted by takesyourchances
    Sounds a good plan. Interested to know what you mean by it giving you options in the coming decades?
    • takesyourchances
    • By takesyourchances 12th Jun 19, 8:29 PM
    • 774 Posts
    • 523 Thanks
    takesyourchances
    Sounds a good plan. Interested to know what you mean by it giving you options in the coming decades?
    Originally posted by Audaxer

    Thanks, I am trying my best with it and sticking to the strategy. It's actually quite amazing when the progress is noticeable year on year with the income side whlch adds to the compound.


    I mean with giving me options in the coming decades with working towards the option of hopefully working less than full time, drawing an income and covering living expenses and more in time. Also I've overseas property owned outright I'd like to spend more time at in the future and building up an income stream outside of trading work time for money. I know it'll take discipline and dedication but hopefully keeping to the plan will help it be achievable.



    These sorts of options, I feel it helps to have a vision and goal when you are investing a lot regular over a long period of time.


    Hope that helps explain and always good to hear others motivations and goals
    • Audaxer
    • By Audaxer 13th Jun 19, 1:32 PM
    • 1,876 Posts
    • 1,177 Thanks
    Audaxer
    Thanks, I am trying my best with it and sticking to the strategy. It's actually quite amazing when the progress is noticeable year on year with the income side whlch adds to the compound.


    I mean with giving me options in the coming decades with working towards the option of hopefully working less than full time, drawing an income and covering living expenses and more in time. Also I've overseas property owned outright I'd like to spend more time at in the future and building up an income stream outside of trading work time for money. I know it'll take discipline and dedication but hopefully keeping to the plan will help it be achievable.



    These sorts of options, I feel it helps to have a vision and goal when you are investing a lot regular over a long period of time.


    Hope that helps explain and always good to hear others motivations and goals
    Originally posted by takesyourchances
    Thanks, yes many people advocate you should look for Total Return, but I think there is a lot to be said for income and growth funds and ITs that produce regular growing dividends.

    I am retired and have an active income portfolio, as well as VLS funds in another portfolio. It will be interesting to see over time which produces the best returns, but in a major downturn whenever it comes, I think I will feel more comfortable having dividends still coming in than having to sell capital in the event of a prolonged bear market.
    • capital0ne
    • By capital0ne 13th Jun 19, 5:50 PM
    • 764 Posts
    • 376 Thanks
    capital0ne
    Sounds a good plan; pay someone to do what you already had for free!
    Originally posted by EdGasketTheSecond
    Cheers mate! Now the shares I mentioned are no brainers really, the usual biggest companies in the FTSE100 so I guess I could just buy more of those and forget ITs. But if that werer so everyone would do just that.

    But all you need is a Deepwater Horizon event to knacker my BP shares, or I could have put my dosh into Woolworths - what could possibly have gone wrong with that.

    Next I could just emulate the top 10 shares of say CTY, but why have 10 sharedealing costs to set it up when one would do. And when it comes to divi reinvestment thats another 20+ dealing charges, albeit probably at a discounr, but CTY would only have four divi reinvestments.

    Those are some of my reasons for moving into an IT oriented portfolio.
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