Investment Trusts are not always best?

Investment Trusts are not always best?

That was the title of a recent article by IT Geek in the Investors Chronicle, an investment periodical that has not enhanced its reputation this year by making a strong case to BUY Conviviality and published it the same day as Conviviality collapsed!

The article then compared five pairs of unit and investment trusts where the same investment house holds both type of similar fund. It describes their ongoing charges and points out the additional performance fees that investment trusts may be able to charge.  

It goes on to say that although investment trusts can “gear up” that is obtain additional borrowing, this can be an “additional risk”.

It makes mention of investment trusts at a premium (a higher price than the assets they hold) and points out that Lindsell Train Investment Trust has an “unwarranted” premium of 42%. I pointed out in a recent blog that the reason for the premium is that Lindsell Train Investment Trust owns a stake in the management company. The reference to the premium being “unwarranted” is in my opinion unwarranted! I have checked the premium today and it is 35%.

It then suggests that investment trusts may not be suitable if you do not want your investments swayed by sentiment, (and that you would be better off with a unit trust as the prices reflect the asset values they hold).

But that is exactly why I want to include investment trusts in portfolios for clients and how that I have been able to provide additional profits over the years for them, namely by making well timed purchases of investment trusts.

In my opinion investment trusts are a good option for clients who want to leverage returns, provided choices are made under guidance.

There was a strong recommendation to select unit trusts instead of investment trusts, it did so five paired funds of unit trusts and their investment trust equivalents, and pointed out the differing charges and even where the investment charges were lower stating that IF they charged their performance fee they would be higher).

The proof of this investment pudding is in the performance of the two paired groups, would unit trusts as the strident article suggested, outperform their investment trust counter parts?

Over a 4.5 year period the investment trusts outperformed the unit trusts by 35%.

Over a 7 year period the investment trusts outperformed the unit trusts by 102%.

The definition of arrogance is confidence without knowledge.

For more informed advice seek out a knowledgeable IFA !












Ray L Best

Ray Best is a resilient Financial Planner with a unique approach to investment planning, his work ethic has propelled him from humble beginnings to be voted as a top UK Financial Planner by Vouched For (as published in the Sunday Times). These days he works with families with large investment portfolios or big inheritance tax liabilities, the first step, is to book a Discovery Meeting HERE.

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