Why choose ITs over OEICs?

[EviesDad]

OEIC,s get FSCS protection which IT,s do not. Probably not a major issue but may be of a concern to some.

[AndrewInDevon]

Some thoughts in addition to the thingsalready said about the differences between funds and ITs.....

1) People seem to obsess about legal form, such as funds, ITs and ETFs. Legal structure is second order compared to investment strategy. I hold funds, ITs and ETFs - I selected the strategy I liked rather than a legal form.

2) Compared to funds and ETFs, ITs are relatively small in terms of AUM. That reflects their closed nature of course, but it also says something. Money has poured into funds and ETFs, whereas ITs have lagged.

3) The IT structure is great for infrastructure, renewables and property, ie operating/managing real assets, where you need an incorporated vehicle to pool activity but I am less and less convinced about them as vehicles to manage equity funds. Then again these sectors produce NAV calcuations which may be less reliable, so what does the premium/discount signal tell us - fact or fiction, or both?

3) ITs, as a legal form, have the appearance to me of shell companies (a company/board of directors) who subcontract delivery to fund managers (eg City is Janus Henderson, Merchants is Allianz and Alliance is WTW). These fund managers are the real powerhouse, City Trust have zero employees, everything is outsourced to third parties. The hired fund manager employ a lot of experts/egos and are the substance of the trust, not the legal vehicle that is the IT. In theory the Board of Directors of City Trust engage Janus Henderson etc, but in practise I suspect it's the fund manager driving the whole show, including sourcing directors. With no staff City Trust has no resource to effectively manage their appointed and sophisticated fund manager, they will relay on their manager and appointed professionals (reminds me of being a pension fund trustee - a hopeless cause as the trustees had been captured by the professionals at the fee trough). So there's something illusory about the nature of ITs as entities. It would take an exceptionally strong IT Board to sack its manager, which I am sure has happened, but probably too late and too little.

[elephanthunt11]

There are pros and cons to both.

As I understand things, OEICs are simpler. You give them your money, they go buy stock in the stated proportions, allocate you units of the OEIC and that's about it. Fairly simple and elegant. However, given the mechanism of buying and selling, it means that if a OEIC has exposure to PE or illiquid assets, it means that should client redemptions happen at a rate higher than expected, the fund may block investors from withdrawing cash as it's dependent on the sale of unlisted assets. Think Neil Woodford scandal.

ITs are a different beast. Again with pros and cons. Firstly, the number of shares is fixed, meaning that you buy and sell shares from other investors on the open market, you do not deal directly with the IT.

If an IT has illiquid assets, and the market is turning for the ngative, well, the IT is under no compulsion to sell that holding. If investors disapprove, they sell their shares to another investor, they don't redeem them with the trust.

ITs can take on gearing (margin effectively). This can be used to enhance gains, naturally, gearing works both ways. This is an important factor for ITs.

Lastly, ITs trade on the open market meaning that their shares' value is not necessarily defined only by the underlying asset, sentiment also plays a part in the share price of ITs. Therefore, an IT can trade at a premium or a discount to its NAV, adding a further layer of market risk. Investors like buying ITs as one can often pick them up at a discount to NAV and you're in theory getting something for nothing, naturally, to realise any benefit, the discount gap must be shorted, bringing the SP back to NAV, this can be done through buybacks or improving market conditions.

ITs are actively managed, OEIC are not necessarily as they can be both passive and active.

I will say - there is a huge bias on this website to ITs and I understand why, but asking here if ITs are better is almost like asking a barber if you need a haircut...

[1nvest]

The real advantage was that advisers got a commission from unit trusts, usually 3% and possibly an annual "trailing" commission. They got nothing from investment trusts.

So IT's in not paying commissions - can provide their investors with more reward.

[AndrewInDevon]

Many OEICs have institutional class units (eg Fundsmith I Class as opposed to the retail T Class). These have lower OGCs and are available on DIY platforms such as HL,AJ Bell and II. Normally to buy into I class units you need at least £1m!

To illustrate the effect of this a Fundsmith T Class acc unit is currently priced at £6.89 whereas an I Class acc unit is £6.98 - for the identical fund - so don't use advisors and DIY into institutional class units to double your benefits!

[MrFoolish]

What do the directors of ITs do to earn their money? Is it money for old rope?

[vand]

What do the directors of ITs do to earn their money? Is it money for old rope?

This is not a question for ITs, but rather all active money managers, whatever legal structure the fund takes.

[Urbandreamer]

What do the directors of ITs do to earn their money? Is it money for old rope?

If you follow the IT sector, i.e subscribe to the MoneyMakers podcast, you might be aware of public actions by a number of boards recently.

Some change who manages the IT investments.
Others have dictated share buybacks to control discounts.
Some, turky's have voted for Christmas and the IT is either merged or wound up. In either case a board loses their jobs.

The people who serve on such boards can have high morals. One could argue that the performance of International Biotech Trust could have been better a few years ago, if it's board members hadn't given up so much time to help governments during the global pandemic. Were they paid money for old rope, such actions could have no effect upon returns.

BTW, wouldn't a web search turn up articles answering your question? Humm, I checked and yes it would.

[MrFoolish]

BTW, wouldn't a web search turn up articles answering your question? Humm, I checked and yes it would.

I suppose I could web search absolutely anything. Actually I could probably ask ChatGPT. But I was interested in the opinions of the good folk at Lemon Fool. I'm sorry you have a problem with this.

[Urbandreamer]

BTW, wouldn't a web search turn up articles answering your question? Humm, I checked and yes it would.

I suppose I could web search absolutely anything. Actually I could probably ask ChatGPT. But I was interested in the opinions of the good folk at Lemon Fool. I'm sorry you have a problem with this.

Asking the opinion of ChatGPT?
Good luck with your investments.

I gave you my opinion, but thought that the FACTUAL part might be appropriate.

Or were you actually asking if IT boards are paid to convert old rope intro ship calking.
https://www.grammar-monster.com/sayings ... d_rope.htm

Do you actually claim that the things that I mentioned that they do is unimportant. They actually do more than I mentioned. I suggested a web search as it struck me that your question was predicated upon that erroneous assumption, caused by a lack of knowledge of what they actually do.

[MrFoolish]

Do you actually claim that the things that I mentioned that they do is unimportant. They actually do more than I mentioned. I suggested a web search as it struck me that your question was predicated upon that erroneous assumption, caused by a lack of knowledge of what they actually do.

I asked the question because I genuinely don't know what values they add or how much work they put in. I've worked at one listed company (not financial) where it was viewed by the staff (correctly or otherwise) that some board members were making up the numbers. Perhaps this has skewed my perception so I'm happy to take some wise input. You seem a bit thin skinned about this - do you work in the industry?

[Urbandreamer]

Do you actually claim that the things that I mentioned that they do is unimportant. They actually do more than I mentioned. I suggested a web search as it struck me that your question was predicated upon that erroneous assumption, caused by a lack of knowledge of what they actually do.

I asked the question because I genuinely don't know what values they add or how much work they put in. I've worked at one listed company (not financial) where it was viewed by the staff (correctly or otherwise) that some board members were making up the numbers. Perhaps this has skewed my perception so I'm happy to take some wise input. You seem a bit thin skinned about this - do you work in the industry?

I don't work in the industry. Nor do I actually argue that IT's are always better than OEIC's. They serve different purposes.
I'm afraid that your post triggered me as it seemed more of a statement than question.

Vand commented about Active Managment and I react just as badly when I read statements along the lines of Passive is always cheaper than active (not a claim made by Vand). Because such statements are almost always simply false and very little research will show them to be false.

Returning to the cause of your statement. It could be true in certain cases, while not so in all or even the majority of cases.

There has been acrimony (publicly reported) at board meetings of SMT. Some board members have left. More recently and controversially they have bought back shares to reduce the discount. Were it money for old rope there would have been no rumpus. Indeed buy back or not would need no debate.
Buying back shares reduces the discount providing short term benefits for share holders like me. However it consumes capital, reducing the ability to invest in the future. Arguably eating the seed corn.

[MrFoolish]

I don't work in the industry. Nor do I actually argue that IT's are always better than OEIC's. They serve different purposes.
I'm afraid that your post triggered me as it seemed more of a statement than question.

OK, well I suppose my reference to "old rope" might be seen as slightly provocative.

I have a small holding in the Baillie Gifford Japan Trust which I rather casually bought to gain some exposure to the Japan market. I didn't keep my eye on it and only recently noticed it has been bereft of the gains of the Japanese market. Turns out it has a concentrated portfolio of "growth" shares but they haven't performed. I can't really blame anyone as this is what you can get with active management. But what should the board be expected to do in these circumstances? Maybe (probably) it's my own fault but I'd assumed a "Japan Trust" would somewhat roughly follow the Japanese market! Anyone know of a cheap Japan tracker?

[EthicsGradient]

I have a small holding in the Baillie Gifford Japan Trust which I rather casually bought to gain some exposure to the Japan market. I didn't keep my eye on it and only recently noticed it has been bereft of the gains of the Japanese market. Turns out it has a concentrated portfolio of "growth" shares but they haven't performed. I can't really blame anyone as this is what you can get with active management. But what should the board be expected to do in these circumstances? Maybe (probably) it's my own fault but I'd assumed a "Japan Trust" would somewhat roughly follow the Japanese market! Anyone know of a cheap Japan tracker?

I have iShares III Core MSCI Japan IMI: https://www.hl.co.uk/shares/shares-sear ... are-charts

it's fairly broad-based (about 1000 constituents), but if you compare it to the Nikkei 225, there's a surprising difference in the growth - the MSCI index is steadier, but has had only about half the growth of the Nikkei in the past year (on edit: that's because of the yen/pound exchange price, of course - that's gone from 172 to 196 in the past year). Baillie Gifford Japan did have a peak in the first half of 2021, and has done poorly since then. Baillie Gifford's style in a lot of markets is high-risk growth.

[londoninvestor]

Anyone know of a cheap Japan tracker?

I have Fidelity Index Japan P, which is an OEIC with 0.10% TER, but haven't checked recently whether there are cheaper options.

From a cursory look at UCITS ETFs, there are a few options at 0.12%: https://www.justetf.com/en/how-to/msci-japan-etfs.html

[Urbandreamer]

I have a small holding in the Baillie Gifford Japan Trust which I rather casually bought to gain some exposure to the Japan market. I didn't keep my eye on it and only recently noticed it has been bereft of the gains of the Japanese market. Turns out it has a concentrated portfolio of "growth" shares but they haven't performed. I can't really blame anyone as this is what you can get with active management. But what should the board be expected to do in these circumstances? Maybe (probably) it's my own fault but I'd assumed a "Japan Trust" would somewhat roughly follow the Japanese market! Anyone know of a cheap Japan tracker?

What should the board do? Well it depends upon the trust remit. For example they have not gained by "growth" advances in Apple, Microsoft or Nvidia.... Because their remit is investments in Japan. Is their remit to invest simply in Japan? The board certainly couldn't/shouldn't start investing in the US. However it also can't invest in big Japanese companies like Toyota or Softbank as it's remit is small to medium size companies. It's NOT going to track the Nikkei.

I own a small amount to CTY, who invest in the UK. However their remit is to invest in older Blue chip companies. Were the likes of ARM to still be part of the UK market, they wouldn't invest in them. It's performance is slightly different from a FTSE 100 tracker, but it's remit means it won't differ by much.

The boards job is not to demand out performance. But cost effective compliance with the trusts objectives.

FWIW, I'm unhappy with the recent performance of my Ruffer holding. That said, I expect them to continue with their remit.

[tjh290633]

Do you actually claim that the things that I mentioned that they do is unimportant. They actually do more than I mentioned. I suggested a web search as it struck me that your question was predicated upon that erroneous assumption, caused by a lack of knowledge of what they actually do.

I asked the question because I genuinely don't know what values they add or how much work they put in. I've worked at one listed company (not financial) where it was viewed by the staff (correctly or otherwise) that some board members were making up the numbers. Perhaps this has skewed my perception so I'm happy to take some wise input. You seem a bit thin skinned about this - do you work in the industry?

Independent directors perform some important functions. In the case of ITs they control the fund manager, who may also be a director. In other companies they form part of various committees, like the remuneration committee. I've been on the board of a company limited by guarantee, where the non-executive directors controlled company policy, and the eventual amalgamation with another company.

TJH

[MrFoolish]

What should the board do? Well it depends upon the trust remit. For example they have not gained by "growth" advances in Apple, Microsoft or Nvidia.... Because their remit is investments in Japan. Is their remit to invest simply in Japan? The board certainly couldn't/shouldn't start investing in the US. However it also can't invest in big Japanese companies like Toyota or Softbank as it's remit is small to medium size companies. It's NOT going to track the Nikkei.

Actually Softbank is its biggest holding. It's the name I have a problem with. "Baillie Gifford Gut Feeling Trust" would be more appropriate

[MrFoolish]

Independent directors perform some important functions. In the case of ITs they control the fund manager, who may also be a director. In other companies they form part of various committees, like the remuneration committee. I've been on the board of a company limited by guarantee, where the non-executive directors controlled company policy, and the eventual amalgamation with another company.

TJH

Do the directors do any of the admin, accounts and/or legal stuff in running the company - or is their role more strategic?

[tjh290633]

Independent directors perform some important functions. In the case of ITs they control the fund manager, who may also be a director. In other companies they form part of various committees, like the remuneration committee. I've been on the board of a company limited by guarantee, where the non-executive directors controlled company policy, and the eventual amalgamation with another company.

TJH

Do the directors do any of the admin, accounts and/or legal stuff in running the company - or is their role more strategic?

No. They have people to fill those functions, like the Company Secretary. They oversee those who are running the company.

TJH