Jack (John) Bogle's thoughts on Unit Trusts

[1nvest]

Jack Bogle's Words of Wisdom:

The marketing colossus known as the mutual fund industry provides the weaponry which enables investors’ to indulge their suicidal instincts.

A difference between Mutual Funds (Unit Trusts) and Investment Trusts is that IT's are permitted to take on gearing, or borrowing additional money for investments, which Unit Trusts are not allowed to do. That means they can take bigger risks, meaning potentially bigger rewards ... or potentially bigger losses.

[DavidM13]

And another difference is Open end funds need to carry a cash buffer at all times in order to meet redemptions, rather than have that money invested which is what they are paid for. Or they may get too big via flows and therefore find it harder to seek out great opportunities (especially in smaller companies for example)

[Arborbridge]

Jack Bogle's Words of Wisdom:

The marketing colossus known as the mutual fund industry provides the weaponry which enables investors’ to indulge their suicidal instincts.

A difference between Mutual Funds (Unit Trusts) and Investment Trusts is that IT's are permitted to take on gearing, or borrowing additional money for investments, which Unit Trusts are not allowed to do. That means they can take bigger risks, meaning potentially bigger rewards ... or potentially bigger losses.

Like all these things, it depends exactly what your criteria are, and views are either based on grand averages, or on the writer's particular choices or "bees in the bonnet". You would find it hard to "read across" from one person's experience and assume that your experience in practice would be the same - or even similar

I'm interested in income providing funds, and in this respect all I can add is that my OEICS have performed surprisingly well against my own basket of ITs. It wasn't what I was expecting because the word on the street is that ITs are the way to go.

Before writing anything off, or accepting anything, whilst using someone's ideas as a starting point, it seems to me one has to have skin in the game.

Arb.

[GeoffF100]

And another difference is Open end funds need to carry a cash buffer at all times in order to meet redemptions, rather than have that money invested which is what they are paid for. Or they may get too big via flows and therefore find it harder to seek out great opportunities (especially in smaller companies for example)

Vanguard Developed World ex UK is my biggest holding:

https://www.vanguardinvestor.co.uk/inve ... c/overview

Vanguard has 0.6% cash in that fund. They always invest the same percentage in every qualifying stock. They have a stake in all the great opportunities among those stocks.

[NotSure]

And another difference is Open end funds need to carry a cash buffer at all times in order to meet redemptions, rather than have that money invested which is what they are paid for. Or they may get too big via flows and therefore find it harder to seek out great opportunities (especially in smaller companies for example)

Vanguard Developed World ex UK is my biggest holding:

https://www.vanguardinvestor.co.uk/inve ... c/overview

Vanguard has 0.6% cash in that fund. They always invest the same percentage in every qualifying stock. They have a stake in all the great opportunities among those stocks.

I don't believe that is the case - the holdings are weighted by market cap - there are over 2,000 stocks, yet Apple alone is nearly 4%. Or have I misunderstood your comment?

[DavidM13]

And another difference is Open end funds need to carry a cash buffer at all times in order to meet redemptions, rather than have that money invested which is what they are paid for. Or they may get too big via flows and therefore find it harder to seek out great opportunities (especially in smaller companies for example)

Vanguard Developed World ex UK is my biggest holding:

https://www.vanguardinvestor.co.uk/inve ... c/overview

Vanguard has 0.6% cash in that fund. They always invest the same percentage in every qualifying stock. They have a stake in all the great opportunities among those stocks.

I don't believe that is the case - the holdings are weighted by market cap - there are over 2,000 stocks, yet Apple alone is nearly 4%. Or have I misunderstood your comment?

Yes, you misunderstood his point. He is saying even if there are big inflows from new investors the fund would be fully invested and would therefore always have e.g. 4% in Apple and very low cash holdings. Of course Geoff is perfectly correct here. The reason being is this is a highly liquid index tracker. If it not hard to buy more and more of these stocks, or off load them, I am a big fan of Vanugard and use them for certain things too. They do exactly what they say on the tin at a great price.

My comment was more aimed at funds that invest in less liquid assets. Whichever way you cut it the OE structure means there are two concerns for the fund manager which do not exist for a manager running a strategy in a CEF vehicle

1) Keeping a cash/near cash buffer to meet redemptions
2) Big inflows or outflows meaning they may have to buy (or sit on cash) or sell, when they don't necessarily want to, or perhaps cant get the best price

The most obvious examples for cash is the Open end property funds which when I last looked averaged 20% cash and some up to 33%! If I invest in a property fund I expect 95% property and 5% cash ready for the next great deal.

Similarly there are issues with deploying new capital if one is investing in a less liquid region, sector or asset class. Eventually hitting returns for all investors.

[GeoffF100]

Vanguard Developed World ex UK is my biggest holding:

https://www.vanguardinvestor.co.uk/inve ... c/overview

Vanguard has 0.6% cash in that fund. They always invest the same percentage in every qualifying stock. They have a stake in all the great opportunities among those stocks.

I don't believe that is the case - the holdings are weighted by market cap - there are over 2,000 stocks, yet Apple alone is nearly 4%. Or have I misunderstood your comment?

I should have been clearer. They always buy the same percentage of every qualifying stock. If you own 100% of all the shares in issue, it is obvious that you have market weights. If you own 1% of all the shares in issue, your holdings in the individual companies will still be proportional to their market weights. If Apple then doubles in price, and the others remain the same, you will still be holding market weights, without doing anything.

John Bogle was, of course, criticising active mutual funds. His own Vanguard index trackers were also mutual funds.