AyG
Crazy Mango Extraordinaire
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Post by AyG on Jul 26, 2019 8:15:37 GMT 7
It's very much going over old ground, but I found this article interesting: "Fund managers do much better job with trusts than funds"citywire.co.uk/investment-trust-insider/news/fund-managers-do-much-better-job-with-trusts-than-funds/a1250285It's nice that they are comparing fund managers with open and closed versions of fundamentally the same fund, rather than the more common "sector" comparison. However, some of the comparisons are a little suspect. For example, Hugh Young has only recently retaken control of AAS, so for most of the period he wasn't managing it. |
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Post by Fletchsmile on Jul 26, 2019 17:15:32 GMT 7
I'm pretty agnostic between the two. Though I find ITs more of a hassle on trading, bid-offer spread, liquidity, admin etc.
The article is good in that it compares the same fund manager. Years back HL used to do similar things, and flag when it might be a time to consider a switch.
Apart from the comparison of the same fund manager, it's a very superficial article though. I really wish someone would do these things thoroughly. Inlcuding:
- reword the title. "have done better" and in the last 10 years
- flag that it has been during a bull market. This is essential. Generally ITs often perform better in a bull market but often perform worse in a bear market
- explain the impact of discounts/ premiums to NAV and how this affects performance in bull and bear markets
- compare 1) NAV of ITs over the time frame 2) share prices of the IT over the time frame versus the unit trust NAV. Comparing NAVs is a better reflection of the fund manager's impact and value add or not. Share price is useful for seeing the impact of sentiment and giving an idea of how discounts/premiums can impact the picture in different markets.
For a like for like comparison of performance I much prefer NAVs
- commentary on how other costs would affect the results. Better still quantify them. eg adjust the ITs for bid offer spreads, and transaction costs. UTs / OEICs often don't suffer these costs
- commentary on liquidity in difficult times, and the additional risks for ITs, including the impact on price
- quantifying discounts on various platforms for UTs. eg on HL some of the UTs end up cheaper than the ITs. This can significantly decrease UT costs
- So gross numbers of NAV vs NAV and share price vs NAV comparisons for performance
- But also realistic net returns with all costs factored in, by quantifying the impact of bid-offer spreads, transaction costs, discounts on UTS etc
- some discussion of what may happen looking forward, i.e we are looking at late cycle now, where odds of a correction start to increase.
and so on...
I pity the poor novice investors who understand nothing of all this then rush out to buy the IT version instead of the UT version
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Post by Fletchsmile on Jul 26, 2019 17:57:54 GMT 7
I hold both LT UK income trust and FGT investment trust, which are mentioned in the article:
Some examples of things they miss.
1) Article says: trust is cheaper
BUT
a) OCF for UT is cheaper than IT at 0.65% compared to the slightly more expensive IT at 0.67%. So even their headline number looks wrong
b) UT from HL is further discounted by 0.14%, so the fund is 0.51% and quite a bit cheaper than the trust at 0.67%
c) Fund is dealt at single price with no bid-offer spread. Trust has a bid-offer spread of approx 0.1%. This is very low for trusts as it's a popular liquid trust
Performance:
2) Trust share price return over 10 years exceeded NAV trust return
Discount:
3) FGT is one of the most stable ITs in terms of discount/premium, so much less an issue than other trusts. Although this has been in a period where LT has gained in popularity and the brand name is doing well.
Liquidity:
4) Not much of an issue at the moment in a good market. FGT is fairly liquid with decent volumes going thru so not a concern.
Performance:
Not much at all in it over 1,3,5 years but the trust slightly edges it. If one took the costs into consideration then it would be closer still.
Interestingly there is a wider gap over 10 years, and the trust clearly ahead.
It Would be worth looking at why that was in the discrete years, 6,7,8,9,10 years ago. It suggest the funds may not have been run in such a similar way in those days
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For JRS JPM Russian Securities
There is a massive difference in performance.
I hold the trust version only.
I bought it after Russia and RUB was heavily beaten up. The IT was preferable as the discount had widened significantly at the time I bought. This was a factor in buying compared to the UT.
Had someone bought in the period before/during Russia and RUB getting beaten up they could well have been better off with the fund rather than trust. The trust would have had the double whammy of tough time and falling price discount widening
It's a good example of where understanding the differences and timing is important. I was very happy to take a view via the trust, and much preferred the IT version at the time I bought
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