2014-05-30

Would you like to invest in the stock market but either you think there is a big correction just around the corner or you simply don’t have a lump sum available?

Written and researched by Charles Marshman, WhichInvestmentTrust.com.

Whether you would like to build a nest egg for your own or maybe for your grandchildren’s future then an Investment Trust savings plan could be the answer.

A savings plan enables the investor to drip feed small amounts of money, typically £50  into the stock market on a regular basis by direct debit, which is particularly useful during uncertain times when investors may be wary of committing large lump sums and putting too much of their capital at risk.

Fast Facts

Investment Trust saving schemes allow investors to save on a regular basis in a low cost savings plan

Some allow saving amounts as low as £10 per month

Advantages

Very low dealing costs, often free

Pound-cost-averaging – meaning with regular savings you average out the peaks/toughs of stock markets

Over the long term, low costs have been demonstrated to make a substantial difference to the value of your investments

Disadvantages

Restricted to one management group

Transferring to another platform/provider can be cumbersome & expensive

Options

Around 20 different managers offer saving schemes

Managers with more than one trust offer the option to switch between trusts

Savings platforms such as Alliance Trust/Halifax/Hargreaves/Charles Stanley are an alternative offering a wider choice but often with a higher cost

By committing a regular sum over the longer term the investor will acquire shares at the various stages of a market cycle; acquiring fewer shares when the price is high and more when the price falls. This smoothing effect is known as pound cost averaging.

Continuous drip-feeding means that the average purchase price paid over any period is going to be lower than the arithmetical average. The value of the shares bought can be further enhanced by reinvesting the dividends in more shares which in turn also receive dividends.

Low cost

Just as Foreign & Colonial was the first ever investment trust to be launched in 1868, so in another first F&C established the first ever savings scheme in 1986. For the first time investors were able to invest small sums of money economically as commission was limited to 0.2 %.

An added advantage is that many groups make no charge at all to purchase shares

The savings plan was a success and it wasn’t long before other management groups followed. There are now over 20 managers offering such schemes into which you can choose to invest in an ordinary share plan, ISA, Junior ISA or maybe a SIPP.

An added advantage is that many groups make no charge at all to purchase shares apart from the statutory half percent stamp duty. There is normally, however a withdrawal charge when shares are sold.

Many managers make an annual charge for ISA’s and some, such as F&C have introduced an annual management charge for their ordinary savings plan as well.

Similarly, some management groups will allow you to top up your investment for free, while others make a charge for doing so. Either way charges tend on the whole to be reasonable, especially given the flexibility that is on offer.

With most groups it is possible to buy and sell online while others such as Invesco Perpetual and Scottish Investment Trust merely allow you to check your account.

Performance

Regular savings can over the long term grow into a substantial sum. A monthly investment of £100 into a global growth trust for the ten years to 30 April 2014 would have grown with income reinvested to £31,475 for an outlay of £12,000- an increase of 162% (Source: the AIC).

Although Emerging markets have not performed so well recently, over the same period the average Global Emerging Markets Trust would have produced £46,118, an increase of 284%.

Over 10 yrs, UK Smaller Companies…has delivered a staggering….increase of 302%.

However over three years an investor would have lost money with an outlay of £3,600 only worth £3,237 at the end of April, a 10% decrease.

This illustrates the importance of investing over the longer term, and in the last couple of years the regular saver has been able to pick up shares in emerging markets more cheaply.

The outstanding sector though has been UK Smaller Companies, which has delivered a staggering £48,223 over ten years, an increase of 302%. What is more it is also the best performing sector over three and five years.

Performance figures were obtained from the Association of Investment Companies.

Milk Tray

With so many managers offering savings plans, the potential investor has a chocolate box from which to choose. From big generalist trusts such as Foreign & Colonial to private equity specialist Graphite Enterprise, or country specialist such as Baillie Gifford Japan Trust, or you may wish to invest in a commercial property trust.

It is, therefore possible to build a diversified portfolio of Investment Trusts through regular contributions to a selection of trusts and managers.

As some trusts and sectors such as smaller companies tend to be more volatile than others, regular savings can be particularly rewarding over the longer term, but the saver may have to tolerate wide fluctuations in the share price.

Platform options

It is also possible to build a diversified portfolio through platforms such as Alliance Trust Savings, Halifax Share Dealing Limited and Hargreaves Lansdown who have recently introduced a savings plan scheme for investment trusts, albeit with a somewhat limited selection of companies.

However the advantage of using a platform is that all of your investments are held in one place.

Apart from their own scheme, Halifax Share Dealing also administer schemes on behalf four trusts including the Scottish Investment Trust and Personal Assets Trust. The Scottish Investment Trust ISA and share savings scheme – Stockplan, is particularly flexible. With a minimum contribution of just £25 and daily share dealings a plan holder may also top up their holding over the phone, subject to a minimum investment of £250.

Although it is not possible to buy or sell shares online, it is possible to view your account online. Purchases are free apart from government stamp duty and sales will cost £12.50 including VAT.

For the ISA, sales are free but there is a six monthly fee of 0.6% capped at £15 plus VAT.

Purchases of Personal Assets Trust shares are also free of charge and they even pay the stamp duty. Again although shares cannot be traded on line they can be bought or sold over the phone twice weekly. There is also a Personal Assets Trust Zero Charge ISA which does exactly what it says with no dealing, management or exit charges.

Full details of groups offering savings plans can be obtained from the Association of Investment Companies by telephoning them on 0800 707707. Their web address is www.theaic.co.uk.

The following is a link to the AIC PDF of investment trust saving schemes or see the table below.  AIC guide to Investment Trust saving schemes.

Investment Trust saving schemes

Manager

Type

Minimum regular saving

Minimum lump sum

Dividend reinvestment

Charges

Features

Aberdeen Asset Management

Investment trust manager

100

250

Yes

Sale: £10.

Transfer Out: £35. Switch: £10

Share exchange facility. Statements issued twice a year. Annual & Interim reports.

Advance Emerging (via Jarvis

Investment Management)

Investment trust manager

25

250

Yes

Purchase: 1% (Lump Sum:

£9.50). Sale: 1% (Lump Sum: £9.50). Transfer Out: £25.

Statements issued twice a year.

Alliance Trust Savings (ATS)

Savings platform

50

50

Yes

Annual: £18.75 per quarter. Purchase:

£12.50 (online). £40 (phone & post). Sale: £12.50 (online).

£40 (phone & post). Transfer Out: £60

Alliance Trust, all other investment companies, UK, AIM/Plus shares, fixed interest, OEICs, UTs, ETFs, cash deposit & share exchange. Child accounts available. Statements issued twice a year.

AllianzGI Europe (via ATS)

Investment trust manager

50

50

Yes

Annual: £18.75 per quarter. Purchase:

£12.50 (online). £40 (phone & post). Sale: £12.50 (online).

£40 (phone & post). Transfer Out: £60

Alliance Trust, all other investment companies, UK, AIM/Plus shares, fixed interest, OEICs, UTs, ETFs, cash deposit & share exchange. Child accounts available. Statements issued twice a year.

Artemis Alpha (via ATS)

Savings platform

50

50

Yes

Annual: £18.75 per quarter. Purchase:

£12.50 (online). £40 (phone & post). Sale: £12.50 (online).

£40 (phone & post). Transfer Out: £60

Alliance Trust, all other investment companies, UK, AIM/Plus shares, fixed interest, OEICs, UTs, ETFs, cash deposit & share exchange. Child accounts available. Statements issued twice a year.

Asset Value Investors

Investment trust manager

50

250

Yes

Annual: 0.5% (max £50). Purchase: Nil.

Sale: tel: £15 (min), online: £11.95. Transfer Out: £35.

Statements issued twice a year. Share exchange facility.

Baillie Gifford

Investment trust manager

30

250

Yes

Sale: £22. Transfer Out: N/a. Switch: £22 (First switch in any 12 month period is free).

Non-certificated plan. Gift facility. Online account

management. Annual & Interim reports. Statements issued

twice a year.

Blue Plantet

Investment trust manager

50

250

Yes

Sale: £25.

Transfer Out: £6.

Gift facility. Statements issued twice a year.

BlackRock

Investment trust manager

50

500

Yes

Purchase: 1.25%. Sale: 1.25%.

Transfer Out: 1.25%. Switch: 1.25%.

Gift facility which includes children. Statements issued

twice a year.

Caledonia (Via ShareCentre)

Savings platform

10

10

Yes

Purchase: 0.5% (Monthly: min £1.50. Lump Sum: min £15) Sale: 1% (min £15). Transfer Out: £20.

Statements issued twice a year.

Edinburgh Partners

Investment trust manager

50

500

Yes

Purchase: 0.2%. Sale: 0.2%. Transfer Out: £12

Annual reports. Statements issued twice a year

(April/October).

F&C

Investment trust manager

50

£500 (£250 top-up)

Yes

Annual: £40. Purchase: £8 (online) £12 (post). Sale: £8 (online) £12 (post). Transfer Out: £12.

Online service and online application: www.fandc.com.

Statements issued twice a year.

Fidelity Investments

Savings platform

50

£1,000 (£250 top-up)

Yes

Nil

Statements issued twice a year.

Franklin Tmpleton

Investment trust manager

50

£250 (£50 top-up)

Yes

Purchase: 1% (min £1.50). Sale: £10.85.

Gift facility. Statements issued twice a year.

Frostrow (Via ATS)

Savings platform

50

50

Yes

Annual: £18.75 per quarter. Purchase:

£12.50 (online). £40 (phone & post). Sale: £12.50 (online).

£40 (phone & post). Transfer Out: £60

Alliance Trust, all other investment companies, UK, AIM/Plus shares, fixed interest, OEICs, UTs, ETFs, cash deposit & share exchange. Child accounts available. Statements issued twice a year.

Graphite (Via F&C)

Investment trust manager

50

£500 (£250 top-up)

Yes

Annual: £40. Purchase: £8 (online) £12 (post). Sale: £8 (online) £12 (post). Transfer Out: £12.

Online service and online application: www.fandc.com.

Statements issued twice a year.

Henderson (Via Halifax)

Savings platform

20

None

Yes

Annual: £12.50. Purchase: from £15

(£11.95 online). Sale: from £15 (£11.95 online). Transfer Out: from £15. Switch: Purchase & Sale commissions apply.

Email address: henderson@halifax.co.uk.

InvescoPerpetual

Investment trust manager

20

500

Yes

Purchase: 0.5%. Sale: 0.5%. Switch: 0.5%.

Statements issued twice a year. Annual & Interim reports.

Investec

Investment trust manager

50

£250 £100 top-up)

Yes

Nil

Statements issued twice a year.

JP Morgan

Investment trust manager

50

£500 (£100 top-up)

Yes

Purchase: £10. Sale: £10.

Investors can’t invest directly in Elect Managed Cash. Statements issued twice a year. Annual & Interim reports.

Jupiter

Investment trust manager

50

500

Yes

Purchase: 1% (max £100) Sale: 1% (min £10, max £100). Transfer Out: Nil. Switch: 1% (max

£100).

Dividend investment. Statements issued twice a year. Annual & Interim reports. Available to view online at www.jupiteronline.co.uk.

Martin Currie (Via ATS)

Savings platform

50

50

Yes

Annual: £18.75 per quarter. Purchase:

£12.50 (online). £40 (phone & post). Sale: £12.50 (online). £40 (phone & post). Transfer Out: £60.

Alliance Trust, all other investment companies, UK, AIM/Plus shares, fixed interest, OEICs, UTs, ETFs, cash deposit & share exchange. Child accounts available. Statements issued twice a year.

NVM Private Equity (Via ATS)

Savings platform

50

50

Yes

Annual: £18.75 per quarter. Purchase:

£12.50 (online). £40 (phone & post). Sale: £12.50 (online). £40 (phone & post). Transfer Out: £60.

Alliance Trust, all other investment companies, UK, AIM/Plus shares, fixed interest, OEICs, UTs, ETFs, cash deposit & share exchange. Child accounts available. Statements issued twice a year.

New City (Via Halifax)

Savings platform

20

None

Yes

Purchase: from £15 (£11.95 online). Sale: from £15 (£11.95 online). Transfer Out: from

£15. Switch: Purchase & Sale commissions apply.

Statements issued twice a year. Annual & Interim reports.

 

 

 

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