GavinK
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Post by GavinK on Jul 17, 2019 9:49:50 GMT 7
There are 4 or so types of units in this fund (A, B, Y and Z), some as Income and some as Acc. In deciding to buy between A Income and B Income, I'm trying to understand why someone would chose B over A. B is classed as Dirty with a high entry fee (Hargreaves Lansdown appear to be saying this is 4% but they waive/refund it, while trustnet say there is no initial charge). No mention on the fund factsheet. What is the source of truth ? Is it set like this to only benefit HL customers ? B has a lower yield at 4.92% vs A at 5.44% B annual charge is 1.25% vs A at 0.75% B has minimum initial investment of £100k vs A at £1k. What am I missing here that would make B more attractive ? Thanks. www2.trustnet.com/Factsheets/FundFactsheetPDF.aspx?fundCode=RPF65&univ=Owww.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-sterling-extra-yield-bond-class-b-income-inclusive/costs documentscdn.financialexpress.net/Literature/6F614F18067E44D1548817E701CBFCF1/119641476.pdf
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AyG
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Post by AyG on Jul 17, 2019 10:42:07 GMT 7
(1) It's not immediately obvious why you are looking to buy the A or B class when the Y class have an ongoing charge of 0.4% (assuming it's available on your platform). Even Z is better at 0.58%.
(2) You've got your minimum investments the wrong way around. A is 100K. B is 1K.
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GavinK
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Post by GavinK on Jul 17, 2019 10:57:19 GMT 7
(1) It's not immediately obvious why you are looking to buy the A or B class when the Y class have an ongoing charge of 0.4% (assuming it's available on your platform). Even Z is better at 0.58%. (2) You've got your minimum investments the wrong way around. A is 100K. B is 1K. Someone has them the wrong way around - the trustnet document (1st link) shows £1,000 as min initial investment for A, whereas the fund document (3rd link) says £100k for A. Y and Z... £10M / £150M initial means it’s either A or B for me.
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AyG
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Post by AyG on Jul 17, 2019 11:53:54 GMT 7
Y and Z... £10M / £150M initial means it’s either A or B for me. If the platform already has these classes, then you're not required to meet the initial purchase amount - just the fund's defined "top up" amount.
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Post by Fletchsmile on Jul 17, 2019 17:41:55 GMT 7
The different classes of the same funds, can reflect different things. Sometimes it reflects older units compared to newer units. This may be under different rules, eg pre Retail Distribution Review (RDR) in 2012 and post RDR. It can also depend on who the classes are offered to/ investors, what jurisdiction, what currencies etc
So not all classes are available to all investors. It will also depend on which platform you buy from. With a crap platform from a crap provider you may be limited in choice, so may end up with more expensive units.
Some of the largest platform providers can also negotiate better rates and lower fees, and to facilitate this different classes. Hargreaves Lansdown is a leader in this and it's one advantage of their platforms. As they are so big they can negotiate more favourable rates. It is also why superficial at a glance platform costs in articles you see about who is cheap and not are often not the full picture.
So you end up with things like:
Class A = old units pre RDR which are often "inclusive units" where loyalty bonuses and rebates are treated in the older way, and loyalty bonuses could be rebated by cash. These older classes tend to be earlier letters in the alphabet
Class Z = new units post RDR which are "unbundled units" where loyalty bonuses and rebates etc must be split out and used only to buy loyalty units. These newer units tend to be letters near the end of the alphabet
Then there are other letters used like
Class Y is only for certain platforms, eg Hargreaves Lansdown who have negotiated better rates.
So the Class B units are likely older units that have been around longer - probably pre RDR, so people have held longer. It wouldn't make sense to buy new units in them. But as people still hold them they are still listed.
Also on the older units it was common to show the initial charge of 4% and then dicount of 4% to arrive at a net 0%. Whereas the newer units under new rules tend more towards what the net is. Different platforms may show in different ways. What counts is the net charge
What providers like HL do is make you aware of newer classes and have processes to convert free of charge to the newer classes which are cheaper. Less sophisticated platforms may notify you less and have weaker processes to convert
You don't really need to know all the histories, why's and wherefore's. Basically you would usually choose the cheapest class that is available on your platform on a net basis after discounts. For most initial charges on unit trusts/OEICs from the right provider it should be 0% net these days - an advantage over investment trusts which cost you a brokerage fee
For Royal London Sterling Extra Yield I buy the class Y thru Hargreaves Lansdown. This class is the best value for money, but definitely not available on all platforms.
I wouldn't worry about the minimum amounts. Platform providers set their own limits which are usually much lower than those shown. So the amounts shown on trustnet are largely irrelevant if you buy thru a platform provider rather than direct from the unit trust. Your platformer provider minimum amount is what counts. e. RL Sterling Extra Yield minimum investment thru HL is only 100 pounds for a lump sum or 25 pounds if you buy thru a regular savings plan. For my brother and sister-in-law they have monthly direct debits from their bank accounts. So one off purchases are 100 pounds or more, but they can invest from as little as 25 pounds a month per fund. The monthly amounts and funds they invest in can be changed at any time
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So to answer your question. There is nothing attractive about the Class B units. You would only buy if that is all that is available to you by your provider. These are also old units under older pricing rules. You will get a lower net distribution yield because of higher charges. Anyone holding them should convert to newer units if they can.
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The difference in yields is largely explained by the fees charged. Unit trusts/OEICs split their accounting into an income account and capital account. Income account looks after the dividends/coupons received and pays any expenses. The net income less expenses can be distributed.
So crudely put on 100 pounds it looks something like this:
Class Y: income 6.27 expenses 0.40 net distribution 5.87
Class B: income 6.27 expenses 1.33 net distribution 4.94
There are a few other factors at play based on timing differences, dates the fund started (particularly if less than 12 months) etc, so there will be some other small diffs. But the difference in yield in the units here and in most cases is largely the difference in charges for each class give or take a little bit
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