Would you switch from HMWO/VWRL to FCIT right now?

I’m currently pondering this. Ok FCIT has 0.49% fees instead of 0.23%/0.15%, but it’s trading at a 11% discount.


If/when discount narrows closer to zero, or strategy change, then switch back out?


Obviously these are just some thoughts based on a quick search online, not investment advice:

I like that ITs have gearing as that should increase returns long term (if gearing is set to a constant amount).
This one seems to have 9.9% gearing as of the end of their year (in their annual report) and they are globally diversified.

From the list of holdings they seem to have 439 which is reasonably diversified (not quite VWRL but probably similar on an effective number of constituents basis).

The OCF of 0.49% is not bad, not competitive against the index trackers but not bad compared to other ITs.

I think it could work out considering the discount and the gearing, as long as you are happy with potential underperformance as it won’t likely have any small caps and it may be over-exposed to growth stocks (I haven’t been able to find sector composition or characteristics).

All in all, if you like this Investment Trust I think it’s an idea that could work out and lead to greater returns! :slight_smile:
If the market takes off, the discount should narrow a lot and the gearing should help it. Especially considering that according to the chart on HL it’s discount has narrowed to 0% for brief periods in the recent past (5 years, which is the max that HL show). HL Link

Nonetheless consider that if the market reverses/crashes it could be a larger drawdown for FCIT and a longer recovery period, especially if it underperforms and the discount increases.

One final thing, I would suggest reading the “risk” section of their recent annual report before making your mind up fully, in case they explicitly mention a risk that you may find unacceptable.

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I dont know much personally about ITs. I know @Dougal1984 you do. What sort of things do you look for when choosing an IT?

I include ITs when looking at fund strategies to invest in as a whole.

  1. Does the IT have an open ended equivalent, and how does it compare on fees?
  2. How does the manager manage any premium/discount to NAV - ITs can be good to invest in market downturns as they tend to trade at a greater discount to NAV, their assets are fixed and they can use gearing to take advantage of the market returning to normal.
  3. How often has the Trust churned over management, and how likely is management to be stable in the next 5+ years (retirement planning etc).
  4. Performance fees - generally dont like them, but they need to have some kind of deferral, where they are invested back in the Trust ideally. Encourage long term performance.
  5. Director holdings - not just a token holding but a good sign they believe in what they are director of.

I think it’s a sound strategy and I’d expect the discount to narrow. Over longer periods, I think it will outperform but not by a lot.

The main reason I don’t flip between trusts and ETFs or funds is simply because I’d rather be a buy-and-hold investor. It’s always felt a little too much like trading for my tastes.

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I like that ITs have more investment opportunities open to them than general funds. FCIT is as old as the hills which gives me some level of confidence. Incidentally, I reduced my exposure to world trackers for the S&P500 instead with which I hope to achieve better overall returns at the end of the day.