IT or Fund when both are available?
Discussion
Could I get some guidance on pros and cons of going with an IT or fund option where both "versions" of a similar investment are available please?
For example Lindsell Train UK Equity is a fund whilst Finsbury Growth Trust is an Investment Trust (appreciate they're slightly different but you take the point).
In an ISA wrapper, other than fees, are there solid reasons to choose one over the other assuming the intention is to hold for the long term?
For example Lindsell Train UK Equity is a fund whilst Finsbury Growth Trust is an Investment Trust (appreciate they're slightly different but you take the point).
In an ISA wrapper, other than fees, are there solid reasons to choose one over the other assuming the intention is to hold for the long term?
The main difference is that funds are open ended (so their value is based upon the combined value of the underlying assets) and IT a close ended (meaning that as well as the combined value of the underlying assets the price of the IT also factors in market demand for its own shares).
This results it ITs trading at either a discount or premium to the value of the combined underlying assets, causing another level of volatility that is not inherent in funds.
However, this can also lead to long term opportunities to get better investment returns than through a fund if you buy an IT trading at a discount and sell when it is trading at a premium.
When buying shares in an IT at a discount to its NAV you are effectively buying the underlying holdings within the IT for less than if you went to market to purchase them directly.
If you are then able to sell these shares when they are trading at a premium to the IT's NAV you are selling them for a greater sum than at the market directly.
Of course doing this the other way round is not ideal!
So they can work for you or against you and do add another layer of complexity. At the right discount though they can be great!
This results it ITs trading at either a discount or premium to the value of the combined underlying assets, causing another level of volatility that is not inherent in funds.
However, this can also lead to long term opportunities to get better investment returns than through a fund if you buy an IT trading at a discount and sell when it is trading at a premium.
When buying shares in an IT at a discount to its NAV you are effectively buying the underlying holdings within the IT for less than if you went to market to purchase them directly.
If you are then able to sell these shares when they are trading at a premium to the IT's NAV you are selling them for a greater sum than at the market directly.
Of course doing this the other way round is not ideal!
So they can work for you or against you and do add another layer of complexity. At the right discount though they can be great!
JulianPH said:
The main difference is that funds are open ended (so their value is based upon the combined value of the underlying assets) and IT a close ended (meaning that as well as the combined value of the underlying assets the price of the IT also factors in market demand for its own shares).
This results it ITs trading at either a discount or premium to the value of the combined underlying assets, causing another level of volatility that is not inherent in funds.
However, this can also lead to long term opportunities to get better investment returns than through a fund if you buy an IT trading at a discount and sell when it is trading at a premium.
When buying shares in an IT at a discount to its NAV you are effectively buying the underlying holdings within the IT for less than if you went to market to purchase them directly.
If you are then able to sell these shares when they are trading at a premium to the IT's NAV you are selling them for a greater sum than at the market directly.
Of course doing this the other way round is not ideal!
So they can work for you or against you and do add another layer of complexity. At the right discount though they can be great!
Thank you This results it ITs trading at either a discount or premium to the value of the combined underlying assets, causing another level of volatility that is not inherent in funds.
However, this can also lead to long term opportunities to get better investment returns than through a fund if you buy an IT trading at a discount and sell when it is trading at a premium.
When buying shares in an IT at a discount to its NAV you are effectively buying the underlying holdings within the IT for less than if you went to market to purchase them directly.
If you are then able to sell these shares when they are trading at a premium to the IT's NAV you are selling them for a greater sum than at the market directly.
Of course doing this the other way round is not ideal!
So they can work for you or against you and do add another layer of complexity. At the right discount though they can be great!
I kind of know most of the above, it's more how it might work in practice.
Finsbury is probably a decent example simply because right now the premium/discount is pretty much non-existent.
Let's imagine a world where all ITs always traded at NAV, where I'm unclear is whether there is a benefit as a "vehicle/structure" going with one or the other.
b
hstewie said:
hstewie said: Thank you
I kind of know most of the above, it's more how it might work in practice.
Finsbury is probably a decent example simply because right now the premium/discount is pretty much non-existent.
Let's imagine a world where all ITs always traded at NAV, where I'm unclear is whether there is a benefit as a "vehicle/structure" going with one or the other.
In that would they would behave in the same way as open ended funds so the only factor becomes price (ITs are often cheaper than managed funds).I kind of know most of the above, it's more how it might work in practice.
Finsbury is probably a decent example simply because right now the premium/discount is pretty much non-existent.
Let's imagine a world where all ITs always traded at NAV, where I'm unclear is whether there is a benefit as a "vehicle/structure" going with one or the other.
Cheers!
Yes fees are something that I don't obsess over but you always keep it in the back of your mind.
I quite like the theory that IT's have boards who are supposed to do governance and ensure the trust is run correctly.
It just doesn't seem straightforward as to why you'd take the dealing fee and stamp duty hit if everything else was the same
I quite like the theory that IT's have boards who are supposed to do governance and ensure the trust is run correctly.
It just doesn't seem straightforward as to why you'd take the dealing fee and stamp duty hit if everything else was the same
As I understand it, the recent problems at Woodford were due to customers wanting to cash in their unit trusts, which resulted in the company having to sell large quantities of shares in those unit trusts. Had the shares been in investment trusts, the investment trust share price would have dropped, but the investment trust company would not have been compelled to sell the shares it owned.
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