Time for open-ended providers to speed up their act
INVESTING ON a shared basis with other savers makes good sense. Not only is the range far larger than most individuals could hope to secure with risk thereby reduced but an experienced manager backed up by a research team can be employed out of the costs.
No wonder then that different savings vehicles have been created for just such a purpose. Investment trusts are closedended collectives, meaning that a given number of shares are issued. Each is listed on the London Stock Exchange.
The earliest, Foreign & Colonial, was launched in January 1868 and is still going strong with assets of over £2.3bn. Today there are over 340 such trusts.
A unit trust is a very different animal. It is open-ended, meaning that ‘units’ can be created or sold upon demand and there is no way of knowing the size of structure. M&G was the first in 1931, originally called the First British Fixed Trust. A variation, the open-ended investment company (OEIC) is more recent and has been regulated since 1997.
There is a problem with openended that brokers and advisers alike try to keep secret. It is sloppy on its timing which can cost a saver much money.
With an investment trust (or for trackers known as exchange traded funds), pricing is defined by the second. The exact price is known before the saver acts online through a platform or broker makes the decision.
This is not the case with openended funds which value assets once a day and then execute all client instructions which have been assembled together. An instruction on a Friday at 1pm is likely to be acted on at noon the following Monday. With many fund investments dependent on non-sterling currencies, the exchange variation can also have a major effect but the investment decision to buy or sell would have been made.
Such leisurely days should be consigned to history. It’s time open-ended providers caught up with investment trusts.