Investment Trusts
Discussion
Now my ISA is open I have a couple of funds in there.
I'm looking at the more defensive side of I've seen mention of a few investment trusts such as Ruffer, Capital Gearing, PAT and RIT etc.
Appreciate there isn't a one size fits all answer but I wondered what the view of IT's versus funds is as I see people often combine both?
I'm looking at the more defensive side of I've seen mention of a few investment trusts such as Ruffer, Capital Gearing, PAT and RIT etc.
Appreciate there isn't a one size fits all answer but I wondered what the view of IT's versus funds is as I see people often combine both?
You can (as you suggest) use them alongside daily-priced mutual funds. I do this.
IT's can sometimes move more (in terms of speed and price) than you expect as they can trade either side of their NAV. Both discounts and premiums can be persistent. I generally look to avoid buying trusts that are at a premium - usually a better entry point will come along if you watch and wait. There are some really good strategies, including those you mention, available in IT format. There are some things that managers can do in a closed-end fund that they can't do in a open-ended fund. I would look at the strategies and their fit with your portfolio first, before considering the fund type.
For long-term investments, I don't think that there are any structural reasons to favour one format over the other.
IT's can sometimes move more (in terms of speed and price) than you expect as they can trade either side of their NAV. Both discounts and premiums can be persistent. I generally look to avoid buying trusts that are at a premium - usually a better entry point will come along if you watch and wait. There are some really good strategies, including those you mention, available in IT format. There are some things that managers can do in a closed-end fund that they can't do in a open-ended fund. I would look at the strategies and their fit with your portfolio first, before considering the fund type.
For long-term investments, I don't think that there are any structural reasons to favour one format over the other.
With a unit trust you own a very small part of each share the company buys. With an investment trust, you own a share in the company that buys the shares. A unit trust may be forced to sell shares that they would prefer not to, if investors want their money back, whilst the investment trust can borrow money to do this.
The difference are clearly described here: http://www.morningstar.co.uk/uk/news/134154/key-di...
The difference are clearly described here: http://www.morningstar.co.uk/uk/news/134154/key-di...
Edited by GliderRider on Friday 16th February 18:23
WindyCommon said:
You can (as you suggest) use them alongside daily-priced mutual funds. I do this.
IT's can sometimes move more (in terms of speed and price) than you expect as they can trade either side of their NAV. Both discounts and premiums can be persistent. I generally look to avoid buying trusts that are at a premium - usually a better entry point will come along if you watch and wait. There are some really good strategies, including those you mention, available in IT format. There are some things that managers can do in a closed-end fund that they can't do in a open-ended fund. I would look at the strategies and their fit with your portfolio first, before considering the fund type.
For long-term investments, I don't think that there are any structural reasons to favour one format over the other.
Yes premiums are the bit that's got me a bit confused.IT's can sometimes move more (in terms of speed and price) than you expect as they can trade either side of their NAV. Both discounts and premiums can be persistent. I generally look to avoid buying trusts that are at a premium - usually a better entry point will come along if you watch and wait. There are some really good strategies, including those you mention, available in IT format. There are some things that managers can do in a closed-end fund that they can't do in a open-ended fund. I would look at the strategies and their fit with your portfolio first, before considering the fund type.
For long-term investments, I don't think that there are any structural reasons to favour one format over the other.
My perception is simply that a lot of "old money" uses IT's as a way to grow that money whilst preserving it though reading how they do that is a bit beyond me, all I know is that families like the Rothschild's aren't stupid with what they do with their money.
Of course that may just make me sound like a sheep but keep in mind this is some of a portfolio.
Premiums essentially strike me as a measure of confidence in the manage/strategy/sector, or evidence of irrational exuberance take your pick as to which.
There's also the possibility of an IT holding unquoted investments e.g. Scottish Mortgage , where you may get odd premium effects from differences in opinion as to what the asset is worth, or simply that the IT is a convenient way to get that asset.
Old Money often has longer investment horizons than we mayflys, and as a result I think it tends to be happier with less liquid assets.
ITs are a better structure to hold that class of asset than an OEIC as the manager doesn't have to consider liquidating assets to satisfy redemptions. Compare this with the way some open ended property funds had to suspend trading after the brexit vote:
https://uk.reuters.com/article/uk-britain-eu-prope...
There's also the possibility of an IT holding unquoted investments e.g. Scottish Mortgage , where you may get odd premium effects from differences in opinion as to what the asset is worth, or simply that the IT is a convenient way to get that asset.
Old Money often has longer investment horizons than we mayflys, and as a result I think it tends to be happier with less liquid assets.
ITs are a better structure to hold that class of asset than an OEIC as the manager doesn't have to consider liquidating assets to satisfy redemptions. Compare this with the way some open ended property funds had to suspend trading after the brexit vote:
https://uk.reuters.com/article/uk-britain-eu-prope...
GliderRider said:
A unit trust may be forced to sell shares that they would prefer not to, if investors want their money back, whilst the investment trust can borrow money to do this.
The difference are clearly described here: http://www.morningstar.co.uk/uk/news/134154/key-di...
That is incorrect.The difference are clearly described here: http://www.morningstar.co.uk/uk/news/134154/key-di...
Edited by GliderRider on Friday 16th February 18:23
An investment trust has fixed capital, therefore the shares can trade based on supply and demand at times trading above or below the underlying value of the share of the trust owned.
The utilisation of gearing (borrowings) is separate to how an investor buys or sells shares.
wilwak said:
I’ve been investing in a wide range of Investment Trusts for 25 years.
Very happy.
Far better than funds. Lower fees and better performance.
Why did you go that way over funds please?Very happy.
Far better than funds. Lower fees and better performance.
I'm only in a couple of funds so far and with the ones I'm in there is no IT equivalent (Fundsmith) but I want to add some balance which is where IT's came up and the whole "this is how old money keep their fortunes safe but also working for them" thing*
*No I'm not comparing myself with the Rothschilds
b
hstewie said:
hstewie said:wilwak said:
I’ve been investing in a wide range of Investment Trusts for 25 years.
Very happy.
Far better than funds. Lower fees and better performance.
Why did you go that way over funds please?Very happy.
Far better than funds. Lower fees and better performance.
I'm only in a couple of funds so far and with the ones I'm in there is no IT equivalent (Fundsmith) but I want to add some balance which is where IT's came up and the whole "this is how old money keep their fortunes safe but also working for them" thing*
*No I'm not comparing myself with the Rothschilds
One of the most important things is that funds shrink and increase in size due to fund flows.
When an investor sells his fund units the fund returns money to the investor. Therefore funds have to keep a cash reserve. When markets fall and investors sell funds the fund is often forced to sell shares to meet redemptions. That means they are forced to sell low.
An investment trust is a fixed size and all share trades are between investors. The investment trust doesn’t return the money themselves. That means they can remain invested when shares have fallen.
Stock market investments are long term. There will be ups and downs.
I’d be nervous about piling in right now. Markets are very high.
I’m not investing any money in markets right now. The only share I’m buying is RDL. A peer to peer lender Investment Trust. It’s at 25% discount to assets and yields 12%. It had one investment that went bad but that has been reserved for now. It’s really spooked investors though. I always look for value and Investments Trusts can present some interesting opportunities when markets overreact.
wilwak said:
Funds generally charge higher fees than Investment Trusts.
pre-RDR, this was definitely true. I'm not so certain this is the case any more though - see http://www.thisismoney.co.uk/money/diyinvesting/ar...
for example. I think it's worth looking at on a case by case basis now.
I've no intention of going near owning shares directly in companies, candidly if the view is "time in the market v timing the market" you have to do something at some point so I have.
Initially that's Fundsmith and LT, possibly obvious ones but they're choices that make more sense to me than trying to understand the Vietnamese small-cap economy or whatever else is out there.
Which leaves the "safer" allocation hence the question as those names are ones that come up quite a lot.
Initially that's Fundsmith and LT, possibly obvious ones but they're choices that make more sense to me than trying to understand the Vietnamese small-cap economy or whatever else is out there.
Which leaves the "safer" allocation hence the question as those names are ones that come up quite a lot.
I've been fortunate enough to own Scottish Mortgage for over ten years. A modest investment in 2006 is now a fairly sizeable one. Its performance has been very impressive but it is clearly not one for widows and orphans. That said there are I think two things in its favour, even given its undoubtedly toppy price and exposure to the FANGs of the world:
(1) This is, I think, an area where an expert manager can add real value. They also take pre-listing stakes and are focussed on some of the emerging economies (look at their stakes in tencent, alibaba, baidu etc)
(2) The fees are very low. I think the TER is <0.5%. For a fund like this that's very good value. I think most of its unit trust bretheren would be double that, or more.
It is basically trading at NAV at the moment. It has traded at a small premium recently so now isnt a bad time to get in.
I am not sure I will invest any more but I wont sell either based on a "cut your losses but let your winners run" approach.
(1) This is, I think, an area where an expert manager can add real value. They also take pre-listing stakes and are focussed on some of the emerging economies (look at their stakes in tencent, alibaba, baidu etc)
(2) The fees are very low. I think the TER is <0.5%. For a fund like this that's very good value. I think most of its unit trust bretheren would be double that, or more.
It is basically trading at NAV at the moment. It has traded at a small premium recently so now isnt a bad time to get in.
I am not sure I will invest any more but I wont sell either based on a "cut your losses but let your winners run" approach.
Went with SMT for the last chunk of my ISA allowance for this year.
In some ways I feel as if I've simply followed the crowd, but it does fit in with my approach this year plus the crowd don't seem to have done that badly IMO and if things change going forward I'll balance it out with more defensive options.
In some ways I feel as if I've simply followed the crowd, but it does fit in with my approach this year plus the crowd don't seem to have done that badly IMO and if things change going forward I'll balance it out with more defensive options.
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