Investment Trust options

spacecolm · 6 May 2021

RedOnion said:
If you change your assumptions, you get a different answer. So check the assumptions.

For a large IT that tracks an index, a 1% management fee would be closer to reality.
You need to include a .2% charge for the ETF.
I think a globally diverse portfolio currently has a dividend yield somewhere around 1.5%
And have a look at what happens when you roll your model out beyond 16 years. The longer you're invested, the bigger the impact of those deemed disposals.

By the way, you've set it up that you've no return in year 1?

Thanks - fixed it to include year 1 and annual charge for ETF!

I also went with your figures on IT annual charge and average yield.

ETF still beating IT at year 8 and 16 but IT beats ETF at year 24

I would likely be moving away from equities between year 16 and 24 due to getting close to retiring age so ETF still looking like a better option for me.

Then there's the question of what would I do with that money in 24 years anyway? If I just invest it in my PRSA now (even though I'm not getting income tax relief) it outperforms both the ETF and IT.

The additional assumptions in this model are annual management fee of 1% and there is no tax on dividends that are reinvested.

Finally the idea of creating my own fund came to mind. My PRSA invests in 5 Star 5 Global Fund with Zurich. This is fifty global equities across five different sectors. I was thinking of splitting the initial €100,000 into the top 50 stocks from the S&P 100.

The assumptions are an initial charge of approx €30 from DeGiro. No management fee. Pay 51% tax on dividends before reinvesting.

The risk is somewhat diversified but I'm guessing the return won't be as large as investing in a S&P ETF because I'm not investing in the likes of netflix that come from nowhere to become very valuable. However, the Zurich PRSA fund isn't picking that up either.

In my model, my own fund beats everything else. But if I wanted to transfer it to bonds at year 24, just investing in my PRSA (despite not receiving the income tax advantage) looks like the best option.

	IT	ETF		PRSA	My own fund
Invested	100,000	100,000		100,000	99,970	Annual Return	1.1
Year 1	109,635	111,277		110,385	110,702	Annual Dividend Payment	0.015
Year 2	120,198	123,826		121,848	122,586	IT Annual Management Fee	0.01
Year 3	131,779	137,790		134,502	135,745	ETF annual charge	0.002
Year 4	144,476	153,328		148,471	150,317	PRSA Annual Management Fee	0.01
Year 5	158,397	170,619		163,889	166,454
Year 6	173,658	189,860		180,909	184,323
Year 7	190,390	211,270		199,696	204,110
Year 8	208,734	235,095		220,435	226,021
tax	35,882	55,389			41,597
total if sold	172,852	179,706			184,424
Year 9	228,846	199,971		243,327	250,284
Year 10	250,895	222,522		268,597	277,152
Year 11	275,069	247,616		296,490	306,905
Year 12	301,572	275,540		327,281	339,851
Year 13	330,628	306,612		361,269	376,334
Year 14	362,484	341,189		398,787	416,734
Year 15	397,410	379,665		440,201	461,470
Year 16	435,700	422,480		485,916	511,009
tax	110,781	76,828	rebate of 49,638 from 8 years previous	135,643
total if sold	324,919	345,652			375,366
Year 17	477,680	384,631		536,378	565,865
Year 18	523,704	428,006		592,081	626,611
Year 19	574,163	476,272		653,569	693,878
Year 20	629,484	529,981		721,442	768,366
Year 21	690,134	589,747		796,363	850,850
Year 22	756,629	656,253		879,066	942,188
Year 23	829,530	730,259		970,357	1,043,332
Year 24	909,455	812,610		1,071,128	1,155,334
tax	243,079	159,954	subtract tax already paid in year 8 and 16		320,400
total if sold	666,376	652,657			834,934

RedOnion · 6 May 2021

spacecolm said:
Then there's the question of what would I do with that money in 24 years anyway? If I just invest it in my PRSA now (even though I'm not getting income tax relief) it outperforms both the ETF and IT.

This is the key point. Use of a pension wrapper will always win out in Ireland. But it sounds like you are young enough. Can you really lock away 100k until you're 50+?

You could put in the 100k now, and claim tax relief each year, assuming you're not maximising your AVCs each year.

galway_blow_in · 6 May 2021

anyone know whether for example city of london investment trust can still be bought by irish residents ?

Its not longer visible on saxo uk platform , it is however listed as a FND and funds incur different treatment as far as i know ?

irishguy · 11 May 2021

spacecolm said:
Thanks - fixed it to include year 1 and annual charge for ETF!

I also went with your figures on IT annual charge and average yield.

ETF still beating IT at year 8 and 16 but IT beats ETF at year 24

I would likely be moving away from equities between year 16 and 24 due to getting close to retiring age so ETF still looking like a better option for me.

Then there's the question of what would I do with that money in 24 years anyway? If I just invest it in my PRSA now (even though I'm not getting income tax relief) it outperforms both the ETF and IT.

The additional assumptions in this model are annual management fee of 1% and there is no tax on dividends that are reinvested.

Finally the idea of creating my own fund came to mind. My PRSA invests in 5 Star 5 Global Fund with Zurich. This is fifty global equities across five different sectors. I was thinking of splitting the initial €100,000 into the top 50 stocks from the S&P 100.

The assumptions are an initial charge of approx €30 from DeGiro. No management fee. Pay 51% tax on dividends before reinvesting.

The risk is somewhat diversified but I'm guessing the return won't be as large as investing in a S&P ETF because I'm not investing in the likes of netflix that come from nowhere to become very valuable. However, the Zurich PRSA fund isn't picking that up either.

In my model, my own fund beats everything else. But if I wanted to transfer it to bonds at year 24, just investing in my PRSA (despite not receiving the income tax advantage) looks like the best option.

IT ETF PRSA My own fund
Invested
100,000
100,000
100,000
99,970
Annual Return
1.1
Year 1
109,635
111,277
110,385
110,702
Annual Dividend Payment
0.015
Year 2
120,198
123,826
121,848
122,586
IT Annual Management Fee
0.01
Year 3
131,779
137,790
134,502
135,745
ETF annual charge
0.002
Year 4
144,476
153,328
148,471
150,317
PRSA Annual Management Fee
0.01
Year 5
158,397
170,619
163,889
166,454
Year 6
173,658
189,860
180,909
184,323
Year 7
190,390
211,270
199,696
204,110
Year 8
208,734
235,095
220,435
226,021
tax
35,882
55,389
41,597
total if sold
172,852
179,706
184,424
Year 9
228,846
199,971
243,327
250,284
Year 10
250,895
222,522
268,597
277,152
Year 11
275,069
247,616
296,490
306,905
Year 12
301,572
275,540
327,281
339,851
Year 13
330,628
306,612
361,269
376,334
Year 14
362,484
341,189
398,787
416,734
Year 15
397,410
379,665
440,201
461,470
Year 16
435,700
422,480
485,916
511,009
tax
110,781
76,828
rebate of 49,638 from 8 years previous
135,643
total if sold
324,919
345,652
375,366
Year 17
477,680
384,631
536,378
565,865
Year 18
523,704
428,006
592,081
626,611
Year 19
574,163
476,272
653,569
693,878
Year 20
629,484
529,981
721,442
768,366
Year 21
690,134
589,747
796,363
850,850
Year 22
756,629
656,253
879,066
942,188
Year 23
829,530
730,259
970,357
1,043,332
Year 24
909,455
812,610
1,071,128
1,155,334
tax
243,079
159,954
subtract tax already paid in year 8 and 16

320,400
total if sold
666,376
652,657
834,934

Have you accounted for the 0.5% stamp duty on the IT and also trading charges, shouldnt be that high but higher than the us etf.

Also accounting for ITs will be alot simpler if your doing regular investments and your also able to offset losses across multiple purchases/other funds.

Lisboa · 15 Feb 2023

AJAM said:
Hey All, I though I would share my Investment trust portfolio, along with the reasoning behind it.
Just to expand on Sarenco's point about Tax first. Both my father and I use Investment Trusts but our tax situation is very different. As a result our portfolios are also completely different.

I am in the highest rate tax band. As a result I am trying to avoid dividends. My investments are for the long term, 10-30 years, so I also want to avoid the 7 year exit tax and also want to avoid higher 41% exit tax rate vs the 33% CGT.
So for me, I want Investment Trusts with low dividend yields and low fees. I want to be globally diversified and have exposure to small and mid-cap stocks. Ideally I want a mix between growth and value (but as you'll see below my portfolio is a little light on Value because I'm trying to avoid dividends). I only choose funds that have a Bronze (or better) rating from Morningstar. My Portfolio is as follows.

Fund Ticker Rating Allocation Yield Fee Style Strategy
Berkshire Hathaway BRK.B
25%
0.00%
Lg Blend US
F&C Investment Trust FCIT Silver 5
20%
1.59%
0.56%
LG Growth Global (CORE)
Scottish Mortgage Investment Trust plc SMT Gold 5
15%
0.62%
0.38%
LG Growth Global Tech
Schroder Asian Total Return Inv. Company ATR Gold 5
10%
1.78%
0.87%
Lg Blend Asia Pacific (ex Japan)
Jupiter European Opportunities Trust PLC JEO Gold 5
10%
0.78%
0.90%
LG Growth Europe (CORE)
BMO Global Smaller Companies Plc BGSC Silver 4
5%
1.13%
0.60%
Sml Growth Global Small
Finsbury Growth & Income Trust Plc FGT Gold 5
5%
1.71%
0.67%
Mix Growth UK High Quality
JPMorgan Emerging Markets Inv Trust JMG Silver 5
5%
1.35%
1.02%
LG Growth Emerging Mkts

Note the Morningstar ratings etc. might have changed since I put the table together some time ago. I also have 5% for individual stocks. I don't consider Berkshire an individual stock, it is basically an investment fund in a stock wrapper.

Hi AJAM,

Two and a half years later, have you stuck to the same portfolio of Trusts, or have you made adjustments along the way?

AJAM · 15 Feb 2023

Hi Lisboa,

There have been some adjustment. Ignoring single stock exposure My Portfolio currently looks like this.

PRODUCT	Target Allocation	Actual Allocation
Berkshire Hathaway B	52%	56%
Scottish Mortgage Investment Trust	16%	14%
F&C INVESTMENT TRUST PLC	16%	12%
BMO GLOBAL	10%	10%
Finsbury Growth & Income Trust	6%	8%

I feel some explaining is necessary.
Since I bought it, Berkshire has done exceptionally well, so the original 25% allocation became 56% through growth and I have no intention of trimming it. BMO and Finsbury also both grew over the years and again I'm not selling them. F&C did OK since 2020 but did not outpeform like the other 3, hence it's relative size diminished. While Scottish Mortgage did outperform, I missed most of the run (I was waiting for the price to come down to buy, in the end I ended up having to wait until 2022).

You might notice there are a few missing from the original list. Schroder Asian is not available to buy on Degiro, so I never got to build the position. Jupiter European I sold in frustration - it kept underperforming the Euro Stoxx 600 ETF. And I've gone cold on Emerging Markets as a category so I never built the position.

If I was starting again I would probably go for this

PRODUCT	Target Allocation
Berkshire Hathaway B	30%
Scottish Mortgage Investment Trust	20%
F&C INVESTMENT TRUST PLC	20%
BMO GLOBAL	13%
Monks Investment Trust	10%
Finsbury Growth & Income Trust	7%

galway_blow_in · 11 Mar 2023

Having studied the options available, I’m of the view that none perfectly reflects the likes of the S+P which is what I’d like ideally but this one is the closest

galway_blow_in · 17 Mar 2023

Just discovered that the JPM American trust is not available to retail investors “ in some jurisdictions “ with Saxo , seems odd as The City of London investment trust is available with Saxo

Are some investment trusts not available to Irish residents

interested21 · 18 Mar 2023

galway_blow_in said:
Just discovered that the JPM American trust is not available to retail investors “ in some jurisdictions “ with Saxo , seems odd as The City of London investment trust is available with Saxo

Are some investment trusts not available to Irish residents

They tend to sporadically appear/disappear off the brokerage platforms. For a time a couple of years ago, they weren't available on DeGiro at all. Then they mostly were added to it, except for JAM. Then IBKR removed JAM for a few weeks at the start of this year because they hadn't gotten the updated KIID.

JAM is now available on both DeGiro and IBKR.

If Saxo if your brokerage of choice then you should contact them and ask them to add it. There's no reason why it shouldn't be available to you.

galway_blow_in · 18 Mar 2023

interested21 said:
They tend to sporadically appear/disappear off the brokerage platforms. For a time a couple of years ago, they weren't available on DeGiro at all. Then they mostly were added to it, except for JAM. Then IBKR removed JAM for a few weeks at the start of this year because they hadn't gotten the updated KIID.

JAM is now available on both DeGiro and IBKR.

If Saxo if your brokerage of choice then you should contact them and ask them to add it. There's no reason why it shouldn't be available to you.

Thanks for that information, excellent

galway_blow_in · 1 Apr 2023

Saxo told me unless I’m a professional investor or have a portfolio of 500 k , I can’t purchase JAM, a real pity as it’s by far the closest tracking investment trust to the S+P

joe sod · 1 Apr 2023

galway_blow_in said:
Saxo told me unless I’m a professional investor or have a portfolio of 500 k , I can’t purchase JAM, a real pity as it’s by far the closest tracking investment trust to the S+P

I know had this argument before but I think it is a mistake to focus on the S&P 500, it has too much tech and too many richly valued stocks. Europe and value stocks are now outperforming the US markets simply because interest rates are rising and the ultra low interest rate environment that benefitted all the tech stocks for many years is over, the game has changed

galway_blow_in · 1 Apr 2023

joe sod said:
I know had this argument before but I think it is a mistake to focus on the S&P 500, it has too much tech and too many richly valued stocks. Europe and value stocks are now outperforming the US markets simply because interest rates are rising and the ultra low interest rate environment that benefitted all the tech stocks for many years is over, the game has changed

Can you point to an investment trust that caters to the European market?

interested21 · 2 Apr 2023

galway_blow_in said:
Can you point to an investment trust that caters to the European market?

I'm not sure I'd be so quick the write off the US after 1 year of underperformance following a decade or more of overperformance. It's still the global powerhouse of innovation and entrepreneurship, and I don't see it losing that crown any time soon.

The S&P500 is tech heavy now because that is where the market has sent it. If another sector takes over then it will rebalance accordingly.

And I wouldn't write off tech yet either. I think the last few months has shown us that generative AI (eg. ChapGPT) could be the innovation to power the next phase of productivity gains in the economy.

I do agree that there's value to be had in not just holding stocks from the S&P500 though. Check out FCIT for an investment trust that is similar to JAM but has a global view.

galway_blow_in · 2 Apr 2023

interested21 said:
I'm not sure I'd be so quick the write off the US after 1 year of underperformance following a decade or more of overperformance. It's still the global powerhouse of innovation and entrepreneurship, and I don't see it losing that crown any time soon.

The S&P500 is tech heavy now because that is where the market has sent it. If another sector takes over then it will rebalance accordingly.

And I wouldn't write off tech yet either. I think the last few months has shown us that generative AI (eg. ChapGPT) could be the innovation to power the next phase of productivity gains in the economy.

I do agree that there's value to be had in not just holding stocks from the S&P500 though. Check out FCIT for an investment trust that is similar to JAM but has a global view.

F+ C has trailed far behind JAM this past decade but it’s not a bad choice, I’m not writing off the U.S market at all , that was the other poster

interested21 · 2 Apr 2023

galway_blow_in said:
F+ C has trailed far behind JAM this past decade but it’s not a bad choice, I’m not writing off the U.S market at all , that was the other poster

Yeah that's because of the global view. It will underperform JAM when US is dominating, and overperform during times when the US underperforms. That's just the nature of diversification.

Personally, I mix the two. Is gives me global exposure while also spreading some manager risk. For me, these are medium term holds. In the short term, I believe US will continue to overperform so FCIT will lag behind. The further out we get, the more uncertainty there is, so I'm happy to hedge my bets.

I'm curious as to why you're stuck with Saxo as a broker? It seems like your problems could be solved by simply opening an IBKR/De Giro account.

galway_blow_in · 2 Apr 2023

interested21 said:
Yeah that's because of the global view. It will underperform JAM when US is dominating, and overperform during times when the US underperforms. That's just the nature of diversification.

Personally, I mix the two. Is gives me global exposure while also spreading some manager risk. For me, these are medium term holds. In the short term, I believe US will continue to overperform so FCIT will lag behind. The further out we get, the more uncertainty there is, so I'm happy to hedge my bets.

I'm curious as to why you're stuck with Saxo as a broker? It seems like your problems could be solved by simply opening an IBKR/De Giro account.

I might yet switch but like Saxo , with them nine years

joe sod · 2 Apr 2023

Just a few names Bankers Trust, BNKR invests globally, FCIT globally, Blackrock Greater Europe Investments trust BRGE, Henderson European Focussed trust HEFT are obviously european focussed.

If you compare any of these to the S&P 500 over the last decade yes they have not had the same performance, but the performance of the S&P500 was exceptional and was the result of alot of macro trends ultra low interest rates, which have now ended. And past performance is no guarantee of future returns the famous caveat. I think US tech is a bit like Japan after the 1980s you don't want to be investing in Japan in 1990. Also many people just look back on the last decade because that is the easy choice presented on the charts you need to be looking back much further into the 1990s to really see the trends

Gordon Gekko · 2 Apr 2023

It doesn’t make sense to compare or benchmark European strategies vs the S&P.

What happens when an Investment Trust is withdrawn by a provider/platform? Do you become a forced seller?

What about a portfolio of equities? My parents have a 50 stock portfolio, so CGT, and pay 0.85% per year management fee.

joe sod · 2 Apr 2023

Gordon Gekko said:
It doesn’t make sense to compare or benchmark European strategies vs the S&P.

What happens when an Investment Trust is withdrawn by a provider/platform? Do you become a forced seller?

What about a portfolio of equities? My parents have a 50 stock portfolio, so CGT, and pay 0.85% per year management fee.

Would you give us a glimpse at what those companies are in your 50 stock portfolio ? I know we are not supposed to push individual stocks, also are you managing it for them, oh you need to sell this now and buy this instead, so the 50 stock portfolio is gradually being changed. For example if you had a 50 stock portfolio from 1970 of the biggest companies then, alot of them are gone or are tiny shadows of their former selves.

Fund	Ticker	Rating	Allocation	Yield	Fee	Style	Strategy
Berkshire Hathaway	BRK.B		25%	0.00%		Lg Blend	US
F&C Investment Trust	FCIT	Silver 5	20%	1.59%	0.56%	LG Growth	Global (CORE)
Scottish Mortgage Investment Trust plc	SMT	Gold 5	15%	0.62%	0.38%	LG Growth	Global Tech
Schroder Asian Total Return Inv. Company	ATR	Gold 5	10%	1.78%	0.87%	Lg Blend	Asia Pacific (ex Japan)
Jupiter European Opportunities Trust PLC	JEO	Gold 5	10%	0.78%	0.90%	LG Growth	Europe (CORE)
BMO Global Smaller Companies Plc	BGSC	Silver 4	5%	1.13%	0.60%	Sml Growth	Global Small
Finsbury Growth & Income Trust Plc	FGT	Gold 5	5%	1.71%	0.67%	Mix Growth	UK High Quality
JPMorgan Emerging Markets Inv Trust	JMG	Silver 5	5%	1.35%	1.02%	LG Growth	Emerging Mkts

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