Evercore Pan Asset

Wouldn’t it be nice if you could have the advantages of both Unit Trusts and Investment Trusts rolled into one easy investment product?

I would like to have from the Unit Trust side knowledge that I could buy and sell the fund I owned at a price close to the underlying asset value of the investments in the fund. I would like to know that the fund was regulated, and properly managed by a custodian and trustees.

I would like to have from the Investment Trust side the knowledge that I could buy and sell shares in the fund any time the share markets were trading.

I am not so keen on the Unit Trust system of having to wait for a dealing day or a dealing time, putting in an order in advance without knowing what the price might be for the transaction. I am not wild about some of the fees and charges that can be placed on it. I do not like the idea that my investment fund shares might go to a large discount to the underlying assets, as can happen with an Investment Trust if its area of specialisation goes out of fashion or if the investment manager goes through a bad patch.

The good news is that the best types of Exchange Traded Fund do attempt to give you the best of both types of fund. Like an Investment Trust, you can buy and sell the shares of an ETF any time the relevant general share market is trading. Unlike the Investment Trust, the fund shares should not go to much of a discount, because the manager can redeem your shares for cash and sell the underlying holdings to stop it doing so, unlike the fixed sum Investment trust. The Exchange Traded Fund has a custodian and trust governance, to keep its assets properly. In the EU it is regulated as a UCITS product.

It has been fashionable to knock ETFs recently. Evercore Pan is not an ETF house, but we do use ETFs when they offer us the cheapest and best way of gaining index exposure to an asset class we like. The simplest ones replicate the chosen index. They go out and buy all the shares in the index in the right proportions. We might also buy an ETF which owns assets, although these may not be the shares of the market it was seeking to track, but has a small proportion in a contract or swap, to enable the fund to provide the return of the index it is seeking to copy. In such a case we would want adequate collateral to back up the swap contract.
I do not myself like funds which go short, borrow money to increase the total size of their investment, or have large amounts of money at risk both ways through options and futures. These can include exchange traded products and notes, as well as some hedge funds. I understand this can make you better returns, and can help manage risk. It is just a case that there’s much more to go wrong. It might not be the fund itself which made the mistake, but if counterparties failed it could trigger all sorts of difficulties.

That’s why I prefer to keep it simple. That’s why I like the minute by minute liquidity akin to an Investment Trust, allied to the ability to sell the shares back to the manager and have them cancelled if the market is not working well. You will still lose money if you are in the wrong asset class, but at least you know what you’ve got and there is a way out.

As published in Investment Week