The difference between OEICs and Investment Trusts - 5MF030

[@kleofasjasondarmawan7098]

Thanks Pete! Such a terrific explanation. Very easy to understand. You explain this way better and clearer than my lecturer.

[@leesmith9299]

one detail that tends to get missed on these explanations is the number of shares of closed ended being "fixed". as i'm sure you're aware they can and often do buy back and issue more shares so #shares not really set in stone. they can control it though so if it's not the right time to sell an illiquid asset to buy back shares they don't have to. or they set the policy accordingly.

[@mikep8857]

A great summary as usual Pete. I don't want to repeat what Benjamin has said but the main advantage to me is that being shares you can hold investment trusts in low cost share dealing ISA's (like X-O or iWeb) with no annual charges and very low transaction fees. That's one of the reasons I tend to hold ETFs rather than traditional tracker funds. I do accept though that even a transaction fee of £5 can be a big percentage if you are making small regular investments. Costs are complicated and depend on loads of factors including how often we buy and sell. I'm sure we would agree though that the best way to reduce costs is to have most of out investments in tracker funds (of whatever flavour) rather than managed funds, the vast majority of which fail to beat the market over the long term.

[@leesmith9299]

iWeb has the same fees for open ended funds as IT's and other shares - £5 a trade and that's it. no annual % fee.

[@Imycat12]

Hi, thank you this was really helpful :) I have an Actuarial exam on Friday which covers Basic Finance and Accounting and this has been really useful for understanding the chapter on different types of investment companies!

[@PeteMatthew]

Really glad it's helpful for you, Imogen!

[@kapersad1]

Thank you.

[@angusg220]

The element that is missing is the hidden charges that are levied on OEIC's which are very substantial indeed. Insofar as your observation on ability to deal, that is really the role of the Market Maker and they are obliged to make a market. There are, I believe, special rules that permit them to go long or short provided that the bargain, when executed is satisfied. They either deliver stock or cash at settlement.

[@matthewpeer4339]

Thanks mate!

[@hop9920]

Thanks for this really useful video. Are investment trusts similar to ETF's then, from my understanding they both trade on a stock exchange at any point during trading hours and the charecteristics look very similar.

[@MeaningfulMoney]

Similar in structure in that they are both structured as shares, but very different in other ways. An IT can borrow, called gearing, and can trade at either a discount or a premium to the net asset value. An ETF is generally a tracker fund whereas an IT is usually actively managed. Do your research before investing.

[@truthseeker8658]

Great information. Is unit investment trusts (UIT’s), the same as investment trust? Is there a tax advantage with UIT vs OEIC? I am talking about USA tax system.

[@MeaningfulMoney]

Really sorry, as a UK-based adviser, I have very little grasp of the US system. We don’t have UITs here in the UK but we do have Investment Trusts. I wouldn’t like to say whether they are the same as the US version though as I may give you wrong information! Sorry not to be able to help!

[@bennymarshall1320]

Hi Pete, when an OEIC creates shares does it also have to make a SCRIP issue?

[@MeaningfulMoney]

Nope - that’s the beauty of the OEIC approach - simple fluid structure.

[@bennymarshall1320]

@@MeaningfulMoney I've been studying this stuff, think I get it now. The company just grows proprtionally to the number of shares so their value doesn't go down, right??

[@VoiceOfThe]

Beginner investor here with a six figure lump sum to invest. Was going to go with a simple two fund portfolio, a 70:30 equity/bond ratio in a globally diversified portfolio (for the equities) with a leaning to just government bonds for some security. Been told I should consider OEICS or UT’s instead of Bonds due to being able to offset against CGT when you sell, unlike an investment bond that’s taxed at 20% on the gains as you go. Is this introducing more risk though?

[@MeaningfulMoney]

Careful here, VOTS. The word 'bond' means about six different things in finance, which is really not helpful. You're using it correctly when you talk of a 70:30 equity/bond portfolio. But in the context of OEICs/UTs/Bonds, then you're talking about accounts or tax-wrappers and also funds - all very confusing, so let me explain - there are three levels: - Equities and Bonds and Gold and Property and all that stuff are *Assets* - Most people hold assets in *funds* like UTs and OEICs but also ETFs and Investment Trusts. - And those funds are usually held in *tax wrappers* like pensions, ISAs, GIAs etc. There's more in this video: kzbin.info/www/bejne/n3izkH6Ja7p8r7s Hope that helps - Pete

[@VoiceOfThe]

@@MeaningfulMoney Thanks Pete for clarifying. I should probably stick with the 70:30 equity/bond allocation. That’s the risk I’m happy with. You’re right it did confuse me somewhat.

[@georgeolid2646]

Man got it wrong, OEIC's are less liquid than REIT's, because OEIC's need to sell the underlying asset to pay of its shareholders, this means that during bust periods they are less liquid, in the UK during the 2008 financial crisis, 2016 Brexit and most recently in 2020 covid, OEIC's had to suspend trading and investors could not receive their money for long period of time. - In contrast REITs are floated on the stock exchange and its not intrinsically tied into the NAV of the property, this means that there can be a premium or a discount, but this does not affect liquidity, meaning that these shares on the whole can be influenced more generally by market sentiment - So OEICS are less liquid compared to REITS.

[@MeaningfulMoney]

You’re right for property OEICs but not for OEICs which hold liquid assets like shares. Yes, they may have to sell assets to realise liquidations, but not necessarily - depends on sellers and buyers. REITs are by definition property funds - the RE stands for real estate, but OEICs can hold lots of different kinds of asset, not just property. Likewise, ITs exist that are not REITs, just hold stocks and other assets.