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Troy Trojan fund or Personal Assets investment trust?

Investment | Investment Trusts Helpful? 15

Asked by devlin7, submitted 07 April 2013.

Open Quote I have £20,000 invested in the Troy Trojan fund and am considering switching my holdings to the Personal Assets investment trust, which is run by the same fund manager. What would the advantages or disadvantages of doing this?End Quote

Answered by Justin on 13 May 2013

The fundamental difference between unit and investment trusts is that the latter are 'closed funds' listed on the stock market which can borrow money to invest.

If you invest in a unit trust the manager can create extra units to satisfy demand. But if you invest in an investment trust the manager can't create new shares, so you have to buy them on the open market at a price which might be higher or lower than the actual value of the underlying investments held. If the price paid is higher than the true value the trust is said to be trading at a 'premium' and if lower trading at a 'discount'. In simple terms a trust might trade at a premium when there are more buyers than sellers and a discount when the reverse is true. This may work for or against you over time, but arguably increases risk versus a unit trust

If an investment trust borrows money to invest (often called 'gearing') you'd generally expect it to do better than otherwise in rising markets and worse in falling - i.e. it again increases risk.

So back to your question:

Troy Trojan is a unit trust and Personal Assets an investment trust. The manager, Sebastian Lyon runs both funds in a similar way (he was appointed manager of Personal Assets in March 2009), so let's assume there's no advantage to using one or the other in this respect. Since Personal Assets doesn't borrow money to invest there's no gearing, so again no difference to Troy Trojan. Personal Assets is, at the time of writing, trading at a 1.5% premium - so you're arguably paying 1.5% more than Troy Trojan, but this is relatively minor in the scheme of things.

Moving onto charges, Personal Assets annual charges total 1.01% (total expense ratio) while the same figure for Troy Trojan is 1.09% - there's very little in it.

Looking at past performance Personal Assets has returned +8.3% over 1 year and +29.7% over 3 years, Troy Trojan is +6.2% and +24.1% over the same periods.

Personal Assets has likely delivered higher returns due to a combination of slightly different portfolios and movements in share price relative to true underlying value (i.e. the premium/discount stuff outlined above).

I really wouldn't have a strong preference to use one over the other.

On a practical level the investment trust will incur share dealing costs, so maybe less appealing if you subsequently wanted to make regular investments.

But then the investment trust might be more liquid in a worst case scenario. If the fund bombs and most investors want to sell, the unit trust might suspend redemptions until it can shift underlying investments to meet those redemptions - whereas you can sell the investment trust shares on the open market, albeit the price you're offered might be very low (i.e. a big discount to underlying value).

Maybe the more realistic risk with the investment trust is that a period of poor performance could push the share price to a discount (potentially losing you money versus the unit trust if you sell), although the reverse may be true if performance is strong.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (1) - To post a comment please register or login .

Comment by rafferty at 8:15pm on 14 May 2013:

Worth noting perhaps that Sebastian Lyons has said that the intention is to keep the fund price at par to NAV, which is normally done by buying or selling shares into the market, though currently being at a small premium means it's a bit off target due to it's current popularity.