Investment Trust options

[spacecolm]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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.