EUR/GBP - Good time to buy into UK investment trusts?

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Lyreco

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Due to the high tax costs of ETF's and investment funds I'm considering whether it is a good idea to invest into UK investment trusts.

I'm helping a relative coming up to retirement with a 300k lump sum. A significant portion of the portfolio will be put into state-savings and low-risk property since capital preservation is important. We want to put 20%-30% into equities however to try secure some growth and the intention here is to buy-and-hold over the longer term since there will be adequate savings and assets to call upon if needed in the short-medium.

As a low rate 20% tax payer this seems to be the best route to avoid 41% exit tax. It also allows possibly easier/better diversification than trying to build a portfolio of 15-20 shares which is the other alternative.

One concern is currency risk of holding investments in GBP.

We understand that most of the risk comes from the underlying companies in the portfolio and where they operate etc. so that for example if we were to invest in the F&C Investment Trust which I've seen mentioned on here occasionally that we would be quite exposed to the US market since it is currently 48% US equities.

With the current weakness in the pound compared to several years ago and with our intention to buy-and-hold it would seem that now is a good time to buy into these type of trusts? Presuming the UK doesn't implode completely and the pound regains some of it's strength over the next 10-15 years!
 
One concern is currency risk of holding investments in GBP.
Your exposure isn't to GBP, it's to the currencies the underlying assets are held in, since there is no FX hedging.

The GBP value should move to reflect the exchange rate Vs the currency the assets are held in.
Almost 50% are US companies. So 50% of your exposure is to USD.
If you've the patience to calculate it, you should see a fall in the GBP price over the past 2 weeks, reflecting the strengthened exchange rate Vs USD and EUR.

It's discussed in detail in some of the other threads about investment trusts.
 
Your biggest exposure is the EUR/GBP exchange rate.

Many of these trusts are yielding 4-6%. City of London has paid a dividend for over 50 years. BRCI is on about 6%, paid quarterly. There are many others and just because I quote these, they are quoted simply as examples.

Those that exposed to non GBP currencies might be able to pay higher dividends in GBP depending on the rate.

You can buy/sell at any time as they are quoted shares, unlike investment funds. You can avail of Capital Gains Losses if you sell at a loss, you cannot do that with the fund. You can keep as long as you like, unlike the funds where you must encash every 7 years.
 
Your exposure isn't to GBP, it's to the currencies the underlying assets are held in, since there is no FX hedging.

The GBP value should move to reflect the exchange rate Vs the currency the assets are held in.
Almost 50% are US companies. So 50% of your exposure is to USD.
If you've the patience to calculate it, you should see a fall in the GBP price over the past 2 weeks, reflecting the strengthened exchange rate Vs USD and EUR.

Yes as I said I'm aware of that, hadn't thought to try calculate the USD exposure though. That's not really my main concern since I'd be exposed to that if invested in a similar ETF or investment fund.
The main point of my post is really to see if anybody see's an additional bonus from strengthening pound in the longer term.

Your biggest exposure is the EUR/GBP exchange rate.

Many of these trusts are yielding 4-6%. City of London has paid a dividend for over 50 years. BRCI is on about 6%, paid quarterly. There are many others and just because I quote these, they are quoted simply as examples.

Those that exposed to non GBP currencies might be able to pay higher dividends in GBP depending on the rate.

You can buy/sell at any time as they are quoted shares, unlike investment funds. You can avail of Capital Gains Losses if you sell at a loss, you cannot do that with the fund. You can keep as long as you like, unlike the funds where you must encash every 7 years.

Agree on these benefits. The yields are attractive for us also since they can help top up their annual income. As above, the main point of my post is really to see if anybody see's an additional "bonus" to investing in these if there is a strengthening pound in the longer term.
 
With respect, it’s terrifying that you’re advising your relative.

- You refer to “low-risk property”; what’s that?!

- As others have highlighted, there’s minimal UK/GBP exposure in a Sterling denominated Investment Trust which holds international companies.

- You’re on the internet seeking advice to pass on to this person!
 
City of London investment Trust is a pretty well diversified "fund "

That would be my choice, I would not be too concerned about exchange rate as most of the UK listed companies do much of their trade overseas
 
I'm interested to see if anyone see's these are particularly attractive investments right now due to the potential to gain on the double from a long term strengthening of the pound.

My anecdotal experience of tracking City of London is that the price moves opposite to any strengthening/weakening in Sterling. This is not too surprising since, as the previous poster said, the underlying investment may be in foreign companies or companies that trade overseas. So I think you may not see the value change just because Sterling goes up. Other UKITs may be different.
 
I am closing this thread as the OP made offensive comments to someone who was trying to help.

Lyreco - it's clear from your post that you are not professionally qualified to give investment advice. You should be aware of your limits and refer your relative to someone who is.

Brendan
 
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