AULD REEKIE'S PREDICTION FOR 2010: IT'S ALL GOING TO HAPPEN AGAIN!

Through the mists that swirl round his mountain eerie, Auld Reekie made his end-of-year financial predictions to assembled anorack-clad, thermos-clutching, shivering fund managers. This year his words were dim and quavering... "How can the worst financial crisis in 80 years be over in six months?" he asked. "How can the Bank of England print £200 billion pounds of monopoly money without inflation? And what will happen when they stop doing it?"

The fund managers waited for the answer, but Auld Reekie just shook his head and tottered back into his cave.

Moneybox Man remembered Cummings' cartoon of 1979, and noted that The Conservative Government then had to tackle a deficit of some £9 billion, whereas the deficit in the spring of 2010 will be almost £70 billion.

Savage public spending cuts... a collapsing housing market when interest rates rise... no wonder Auld Reekie tottered.

All the more important, says Moneybox Man,  to assemble a list of sound, cautious, well-managed Investment Trusts,  that can be bought when the time is right!

We will next look at cash, fixed-interest, corporate bonds and the like. (Not that Moneybox Man actually likes any of them at the moment).

Step-by-step guide to investing: seminar 13

A spectacular "Highland Fling" by the girls from Aberdeen Asset management was the highlight of the festive Christmas seminar, held as always in the Bonnie Prince Charlie function room, Tannochbrae Inn, Ullapool. Earlier, before tucking into the mince pies with a dram or two of whiskey, Merryn Somerset Webb of Moneyweek told us why it is that 68 per cent of Investment Trusts with a history going back over 30 years have beaten the stock market averages, whilst only a pathetic 28 per cent of Unit Trusts have done the same.

So what’s the secret? It is partly the “closed ended” structure. Investment trust managers can’t be forced to sell out of positions by investors looking to redeem shares in the same way that unit trust managers can, so they are more able to look to the long term.

It is partly down to the gearing (unlike unit trusts, investment trusts can borrow money to invest). Gearing boosts returns in rising markets and, as over the long-term the market generally does rise, it clearly contributes to out-performance.

Then there is the board of directors. Investment trusts are listed companies and, as such, have boards. These boards, charged with looking after the interests of shareholders, can – and do – shift between managers as they see fit.

Finally, there are fees. According to Lipper, the average investment trust has a total expense ratio (TER) of around 1.4 per cent and a third have TERs under 1 per cent. Contrast that with unit trust charges, which average well over 1.5 per cent and which have risen steadily over the past decade.

Overall, all this makes me a great fan of investment trusts. Current favourites? The Schroder Japan Growth Fund, which is trading at a discount of around 14 per cent to its net asset value (NAV) – making it a bargain if you think (as I do) that the Japanese market is underrated.

I’m also interested in Alliance Trust, which has just completed a buyback of its own shares. The trust has underperformed the market this year, thanks to its low-risk approach to investing (no bad thing) and is currently trading on a 17 per cent discount to its NAV. It also has a 41-year record of consecutive dividend increases. I suspect there is a value opportunity there.

So there we have it. Low fees, directors to scrutinise the manager, the ability to hold on to good stock when the markets are tumbling, and the ability to borrow money and enhance performance when the markets are rising.

Before wending our separate ways (and our thanks to Wee Willie Killicrankie the fourth of Perth, for giving Alastair Darling a lift to Edinburgh Airport in his helicopter) the seminar had an informal discussion about corporate bonds and fixed interest Investment Trusts. More of this to come!

A GUEST EDITOR SPEAKS OUT

Merryn Somerset Webb, feisty and amazingly clever editor of Moneyweek tells it as it is
 
Study after study has shown that the average fund manager under-performs the stock market and that the fees he charges to do so pretty much guarantee the ongoing poverty of his clients.

That should make it clear that the average investor should bypass active funds and stick to tracker funds or a variety of cheap exchange traded funds.

But if this is all so obvious, why are there still well over 2,000 actively-managed unit trusts for sale in the UK? And why do we buy them?

It is partly about ignorance of course – marketing material for most funds tends not to mention the high odds of failure.

But it is also about hope: the returns from the main indices seem so paltry (let’s not forget that even after this summer’s mega rally, the average investor has only broken even over the last decade), that we can’t give up the idea that it is possible, with a little sense, to do better.

So, we keep buying the funds and we keep paying the fees.

The good news is that there is a cheaper way to keep the dream alive: the investment trust sector.

Recent research from Money Observer shows that, over the last 30 years, investment trusts have significantly outperformed unit trusts. For example, of the 51 investment trusts that have a track record going back 30 years, 68 per cent beat the index. Of the 82 unit trusts with similar records, a mere 28 per cent did the same.


Merryn will join us at the last Step-by-Step seminar before Christmas (Dec 23, 11am, Bonnie Prince Charlie function room, Tannochbrae Inn, Ullapool) where she will reveal the secrets behind the success of Investment Trusts.

A cartoon for the weekend

ADDING PROPERTY TO THE PORTFOLIO

TR Property invests in property and property companies across Europe and gives a solid dividend of 3.7%. A long time favourite of Investment Trust followers, it is less volatile than property companies that invest directly in bricks and mortar. The TER is a respectable 0.79% but performance fees last year pushed it up to 1.65%. It is on a discount of around 8%.

Moneybox Man bought TR Property in 1999, when the shares were 44.5p each. They stagnated for a year or two, then crept up to 52p a share. They are now 157p a share, which is low compared to the recent past.

Step-by-Step guide to investing: seminar 12

INCOME FROM THE EAST

"After a decade of corporate restructuring and more prudent governance, the Asia Pacific region is now well positioned for high, yet sustainable dividend yields" says Michael Kerley, manager of the hugely successful Henderson Far East Income Trust. Moneybox Man bought in 2007 at 121p a share, and they are now worth 300.5p, with a dividend of 4.10%. But Moneybox Man is thinking of selling. Why? Because they have moved from a discount to a premium, and that is the sensible time to sell. Another reason, though, is that Michael Kerley is manager of the newly-created Henderson New Star Asian Dividend Income Unit Trust. In other words, you can buy the same manager, same expertise, same market, without paying over the odds. Bought through the Alliance platform they will cost only 0.25% initial charge, and all trail commission will be rebated on a monthly basis. (Look back to the seminar on unit trusts, financial advisers, and related villainy).

Worth a look also, is the very successful Scottish Oriental Trust, managed out of Hong Kong by the feisty Sue Rippingale. It's not intentionally an income trust, and the dividend is unclear - over 4% according to Trustnet, but less than 2% according to Citywire - but chairman James Ferguson says in the latest report that dividends flowing into the trust are now around 3%. Both he and Sue are very downbeat about the short term, have a big cash holding, and have squirrelled away around £0.5m this year to support future dividends. This trust is the best in its sector over one year, three years, and five years.h Oriental Trust

 

A financial headache for promoters of golf tournaments, hospitality at golf tournaments, etc, as Eldrick Tont Woods pulls out of the game in disgrace because of all those women.  You'd think people would have suspected something when he adopted the name "Tiger." Or perhaps one of the girls called him Tiger (the one in the picture perhaps) and he started answering to it as a matter of course. Seemingly there are some photos of him sporting with one of the lasses (we are very Scotch on this blog) and an injunction has been taken out forbidding publication of the photos, and even forbidding mention of the injunction (oops). Moneybox Man has no fear. He has a hidey hole in the Highlands, and the girls on the Baillie Gifford Asset Management Equity Investment team will smuggle shortbread to him, and eventually spirit him to Skye.

The past month in review

"There was lots of noise culminating in a strange outburst of emotion about the collapse of an unappealing, extravagant but ultimately unimportant property bubble in Dubai. In the meantime gentle healing continued in the US economy, rapid growth continues to take place in China, India and Brazil and corporate earnings have continued to rebound impressively with technology giants generally leading the way. We see no reason to change tack." Stalwart manager James Alderton, speaking from the northern fastness of Scottish Mortgage.

Step-by-Step guide to investing: seminar 11

LOOK EAST, LOOK WEST - THE GLOBAL TRUSTS

These include the old leviathans, the old originals - trusts like Alliance, Foreign and Colonial, Witan. Traditionally cautious, and not given to paying out large or even moderate dividends, the leviathans have struggled in recent years, and discounts have widened.

There are other, perhaps more nimble trusts in the field. There's British Empire Securities (pre 1903 the Transval Mortgage Loan Co), still flying the flag. British Empire has shown an average increase of NAV of 13% a year since 1985. There's Scottish American, affectionately called SAINTS, and Jupiter Primadona, the darling of knowledgeable small investors in the past.

All in all, though, Moneybox Man likes Scottish Mortgage, a very old trust and a flagship for Baillie Gifford Management. It prides itself on being low cost (Total Expenses Ratio of only 0.51%)  it has a satisfactory yield of 2.39% and is on a very tempting discount of 14.7%. It has a lot of money in China, and also, curiously, in Sweden. He also likes J.P. Morgan Overseas Investment Trust with a TER of 0.63 and yield of 1.76% and a discount of 7.5%. Highly-regarded manager Jeroen Huysinga (pictured) took over a year ago with the brief to improve performance. Last but not least is Moneybox Man favourite Murray International, which believes in a solid dividend. Manager Bruce Stout says: "High quality corporate earnings and well funded dividends will become even more important if, as we expect, investors resolve is about to be tested by what remains a very fragile economic backdrop." This brilliant trust is at a premium of about 2%, but Bruce Stout's expertise cannot be bought elsewhere.

So you think a trust is "spicy" with gearing of 124% do you Moneybox Man? Well I've got Jupiter Second Split with gearing of 218%! Yes, and worse! So why don't you tell your friends about investing on the Dark Side? Tell them what can happen when a convent girl like me becomes addicted to gearing, to risk, and to ruin! Nearly-ruined, Romsey.
I'm sorry, Nearly-ruined Romsey, but this site is for sober investors who find excitement enough playing scrabble. Our aim - and there are only two or three seminars to go - is to put together a small selection of sound investment trusts that can be easily managed on line, that can be left alone for a five year period if necessary,  that can be expected to rise in line with inflation, and that will pay a tax-free dividend of 4 to 4.5%pa. That is what we are about, and therefore "Non-conventional" Investment Trusts are not for us! [Incidentally, you might like Jupiter Dividend and Growth where the NAV on the ordinary income shares has fallen by 49.7% leaving the shares geared at 3337%  - yes, that's three 3s and a 7]

Step-by-Step guide to investing: seminar 10

CURIOUS-AND-SNOOTY TRUSTS

We have looked at three solid UK income-and-growth trusts, now let's look at the curious-and-snooty sector. These trusts don't seek outside managers, they manage themselves. They are passionate about capital preservation and do not take undue risks. They are usually investing their own money as well as yours.

Personal Assets. Back in the early nineties Norman Lamont swore by Personal Assets. It is famous for being the only fund to have seen Black Monday coming and moved its assets to cash. In 2006 its star manager Ian Rushbrooke warned of the current credit crunch, saying that US Central banker Greenspan had fuelled worldwide a deadly debt mountain the enormity of which will only be revealed over the next three years.

The quarterly reports now written by Robin Angus are a delight to read. In last month's report Robin also blames our current woes on Greenspan and other central bankers:

To deny the inconvenient truth that the central bankers were responsible for the banking crisis is like saying that, while producing pâté de foie gras may be immoral, the moral fault rests with the geese for allowing themselves to be force fed.

And blaming the cupidity of many investors:

Remember those people who lost what the media always call ‘their life savings’ with Barlow Clowes? Tell them that water could go uphill, or that you had a perpetual motion machine, and they’d have laughed at you. Tell them you could invest in gilts, pay a hefty management fee and still get a yield higher than the gilts themselves, and they chorused, ‘Where do we sign?’

Personal Assets' excellent performance over a decade is laid out in the report. Interestingly, the trust keeps a large core holding in the Alliance Trust. Personal Assets has succeeded in keeping its share price close to its NAV. Not a bargain then, but a good buy.


RIT  R is for Rothschild, and if you buy into this trust you are buying the expertise that handles many of the Rothschild millions. Lord Rothschild is the chairman. If this trust goes bust you will find him in a cardboard box on the Embankment. It is a global investor. Like the other curious-and-snooty trusts it is ashamed to be on a discount, but can't entirely help it. A year ago it was on a premium of over 5% - you had to pay over the odds to get the Rothschild expertise! - but currently it is on a discount of around 4%.

Hansa Trust. A Moneybox Man favourite. Perhaps it's the website, with its lighthouse beaming out in search of profit. It's run by the Hanseatic Group, and possibly behind their smooth city façade they are all salty Baltic sailors. Is a "special situations" trust, investing wherever it feels it can make a few bob. It is very snooty indeed:

we co-invest with our clients, demonstrating our intention to share in the risk of loss with our clients and to be rewarded by the investment returns and not by fees alone

We invest, in effect, as principal which differs significantly from most asset management organisations for whom the establishment and building of fee based business is their primary rationale.

Our creative energies are focussed on the investment process. They are not dissipated into organisational needs, hierarchy, bureaucracy or office politics.


It has a very large holding - practically a third of its assets - in Ocean Wilsons, a Bermuda based company that amongst other things runs the ports and tug boat services of Brazil, and gives money each year to rescue homeless orphans from the streets of Rio de Janeiro. Ocean Wilsons had a terrible time last year, dropping in value by over 30%. This pulled the price of Hansa shares down, and caused a widening and embarrassing discount of nearly 12% and a dividend of 2.3%.

Moneybox Man holds Hansa, and suffered last year - but he isn't selling, and is inclined to buy some more. Hansa at a discount of 12%! Is the world coming to an end?

Do you think the government should oppose the Alternative Investment Fund Managers Directive? (AIFM)  It is causing me a lot of worry. George, Southport.
Well, "George, Southport" you are clearly writing under an assumed name because real people are called Muddled, Middlesex or Bewildered, Bewdley. The picture gives you away - white hair, black eyebrows, eyes bloodshot from poring over the Pre- Budget Report - you are Alastair Darling, photoed from a funny angle, and you are trying to get Moneybox Man's advice without paying his £1,000 private consultation fee. However, your question does have a wider interest. The AIFM directive is a European instruction that would force investment trusts to turn into unit trusts. It stems in large part from Europe's envy/hatred of Britain's financial skills. In the short term it would give a windfall gain to holders of Investment Trusts, as their investments would all be instantly priced at their NAV. Someone with £100,000 worth of Investment Trusts would wake up one morning to find their portfolio worth £110,000 or whatever. In the long term, hundreds of thousands of savers would suffer from higher costs and poorer performance. Do what you think right, Alastair (God help us).

A CARTOON FOR SATURDAY

Tell me about gearing, Moneybox Man. I'm fine with the NAV. My own personal NAV is so high I'm in the stratosphere. But gearing and TERs really muddle me up. Gearing always seems to be higher than 100, which can't be right. Miss Muddled, Middlesex.

I'm glad you asked me that, Miss Muddled Middlesex. Gearing and the TER are the last two things we need to look at when considering investment trusts.

• Gearing is when investment trusts borrow cash from the bank, and use it to buy shares. A trust with a gearing score of 100 is, in fact, not geared at all. A gearing of 110 means that the trust has borrowings of 10% over and above its normal value. Gearing allows the managers to - well, manage, to show their flair, win a bit extra for the NAV or lose a bit if they back the wrong horse. Trusts with high gearing are more volatile. If the market goes up, the shares go up a bit extra - if the markets fall, the shares fall a bit further. Temple Bar is geared to 116, and the Edinburgh Trust to 126. 

• TER is a trust's Total Expenses Ratio. Investment Trusts have lower running costs than "unit trust" funds because they don't pay financial advisers and don't advertise much. But costs are sometimes complex, involving lump sum payments and percentages, and payments to directors. The TER is a measure favoured by the noble and upstanding Association of Investment Companies. It shows the effect of the real costs - manager's costs, other running costs - on the fund's performance.

•  You can see the TERs and the gearing for many trusts at the AIC website
  

Step-by-Step guide to investing: seminar 9

SOME MORE INCOME AND GROWTH TRUSTS

We have already looked at the Edinburgh Trust, managed by the redoubtable Neil Woodford. Mr Woodford is a cautious man who likes dividends, and The Edinburgh Trust is paying almost 6% and is on a discount of around 6%. It invests heavily in the FTSE 100, and can be expected to perform accordingly.

A third dividend-and-growth that Moneybox Man likes is Finsbury, which, like Temple Bar, started out in 1926. The board has placed management in the hands of stylish Frostrow Capital and the dashing Nick Train of Linsdell Train. Like other managers, Nick reports monthly to tell you how your company is doing - Factsheet Oct 09.pdf  Finsbury has a yield of just over 4% and is on a discount of around 4%. Small selection of stock usually in larger UK companies.

Step-by-Step guide to investing: seminar 8

TIME TO MAKE A CHOICE!

We are putting together a few investment trusts (10 perhaps) as part of a balanced portfolio of trusts, funds, and bank deposits.

We are not going in for anything risky or wild, although investment trusts will undoubtedly form the more volatile part of the portfolio. We are looking only at well-established, well-run trusts. Trusts that know what its like to have felt the force of the economic gale, the destruction of asset values. Trust that have seen it all before, and have survived and prospered. Trusts that have whiskers.

We will look in three sectors:

Safety-first bread-and-butter UK growth and income trusts.

Romantic, slightly secretive, cool if not disdainful trusts.

The old leviathans: the global trusts!

Trust No 1

In the mid-nineties Moneybox Man asked Paul Kavanagh, now chairman of Killick Capital but then a modest stockbroker, to suggest a safe investment for his old dad's PEP, and Paul said: "Why not Temple Bar. It's a solid, reliable trust."

And indeed it suited Moneybox Man's old dad very well. Temple Bar started life in 1926 as the Telephone and General Trust. It is named after the place where the heads of traitors were dangled in the good old days. But it is no slouch, no dreamer of past glories. In the last five years it has consistently scored first or second place in the UK growth and income sector.

It invests mainly in the FTSE 100. It has some 30,000 shareholders. It has a young and successful manager. Its yield is around 4.5% and it is standing at a modest discount of 3.3%.

Our Mission Statement

With so many new viewers, it seems a good time to repeat our mission statement.

We are an equal opportunities website dedicated to diversity and Sussex Pond Puddings. We know that shares can go down as well as up. We never give advice, but only say what Moneybox Man would do if he were investing.

Where has my money gone?

Once upon a time, a very long time ago, people who bought shares would be sent a share certificate through the post, and their dividend cheques would be sent to them through the post as well.

Today your holdings are held in "nominee accounts" somewhere in hyperspace, guarded by goblins from Gringotts Bank, and the only place you will see a share certificate is in a museum.

It's all done by the Crest system:

Crest is an electronic settlement system, regulated by the Financial Services Authority, which removes the need for paperwork in share transactions. Typically, client funds, be they cash or shares, are held in the broker’s nominee account in Crest. The closure or bankruptcy of the broker does not affect shareholdings held in Crest, or the ability of Crest to transfer/sell the client’s shareholdings. Client money rules apply equally to funds managed by brokers or fund managers, such as investment trust companies.

So there you are. All your holdings assembled in one place, all your dividends collected together in one place, and all you have to do when you want to go to Costas or buy some caramel wafers is transfer a bit of cash electronically to your bank account . That's progress!

My financial adviser says it's very important to have an expert like him looking after my financial assets, so that my funds can be switched from one fund to another when necessary. He laughed like a hyena when I said I wanted to look after my own portfolio. Can I look after my own portfolio, Moneybox Man? Confused, Canterbury

I'm glad you asked me that, Confused Canterbury. Certainly you can look after your own portfolio. And it will not need constant attention, or a great deal of switching about between funds. A balanced equities portfolio can be left alone for 12 months or indeed 12 years if you are using investment trusts or unit trusts. Join our seminars to learn more!

Step-by-Step guide to investing: seminar 7

MORE ABOUT THE DISCOUNT

In the last seminar we saw that because of a small discount to NAV, you can buy Neil Woodford's expertise at a bargain price through The Edinburgh Investment Trust

What are the other effects of a discount?

• When markets are rising, the discount tends to close as more investors are attracted. When markets are falling, the discount tends to widen. If you think markets will rise over the next 10 years, then now is the time to buy, because you will benefit from both the market gains and the closing of the discount.

• If the discount gets too wide, shareholders might demand that the trust be wound up. You will thus receive the value of the NAV per share in cash - even though you might have bought them for 20% less! Look at what is happening now at the Welsh Industrial Investment Trust

• A trust with a discount delivers a dividend boost - because the dividend comes from the NAV, not from the share price. 

In the next seminar we will look at trusts to buy (and why).

Dundee - home of cake and also home to the Alliance Investment Trust, that has now launched an on line investment platform that allows you to hold shares in other investment trusts, unit trusts, etc, and have them assembled in one place, bought for a reasonable £12.50 a trade and managed free of charge. They want you to hold Alliance Trust shares as well, of course, but there's no obligation. Anyway, Alliance Investment Trust is a good safe core holding.

I sense that you favour investment trusts, Moneybox Man. But how do I actually buy them without having my money snaffled by predators? I've been kept awake at night worrying about it.  Hesitant Investor, Stratford Upon Avon

 I'm glad you asked me that, Hesitant Investor. There are two very-low-cost on line brokers I am happy to recommend. They are Selftrade and Alliance Trust (see next post).

Selftrade
Will accept up to £20,000 immediately by debit card.
Charges £12.50 a trade. Trawls the marketmakers for best deal, so can save you a couple of quid on that if you're lucky.
Charges £35 a year plus VAT to run your accounts, collect dividends for you, show your portfolio online, give you a yearly printed statement, allow you to transfer dividends to your bank account. Allows you 3 free trades a year - but they have to be taken in August!

Alliance
Will accept up to £25,000 immediately by debit card.
Charges £12.50 a trade, with a small reduction if you hold shares in the Alliance Trust.
No charge for running your account, collecting dividends for you, showing your portfolio on line, allowing you to transfer dividends to your bank account.

Step-by-Step guide to investing: seminar 6

INVESTMENT TRUSTS AND THE DISCOUNT

This is the difficult bit. Get through this and it's clear blue skies and pots of money.

You will remember from Seminar Two (it will be engraved on your memory) , that when you buy or sell "unit trusts" you will always get the underlying value of the units.

End of story. Unit Trusts are very simple,.

Investment Trusts are different!

With investment trusts you are buying shares in the company, not in the underlying value of the company's assets.

This underlying value is called the NAV. This is short for Net Asset Value.

To illustrate the importance of the Net Asset Value, let us go back to Dundee in the 1870s.

It's a year or so after the Alliance Trust was formed by merchants financing emigrant wagon trains on the Oregon Trail, and mortgaging sugar plantations in Hawaii.

There's a cold wind blowing in from the Firth of Tay (we can safely say this I think) and canny Angus calls on fellow merchant Donald, who he knows is in urgent need of cash.

Angus

I hear you want to sell those shares you bought in the Alliance Trust, Donald

Donald

Aye I do.

Angus

Well now, I'll give you eighty pence each for them.

Donald

Eighty pence! Why they cost me a pound each and they're worth at least one twenty by now, according to that manager we have in a garret with only a wee candle and no coals.

Angus

Maybe, but there's been a terrible lot of wagon trains burned by Indians, I'm hearing, and a sugar cane blight in Hawaii.

Donald

But eighty pence! Why I'd be selling at a discount to NAV!

Angus

Aye, aye, but you need the money and I'm the only buyer around I'm thinking.

(Sound of newsboy out in the street)

Newsboy

Evening Telegraph! Evening Telegraph! Wagon trains saved from redskins in Oregon! Sugar blight rumour unfounded! Alliance Trust's manager reveals net asset value of each share now one pound fifty.

Donald

NAV of one pound fifty a share!

Angus

Ah well, I'm a generous man so I'll give ye a pound a share Donald, a pound a share.

Donald

Didn't you hear? They're worth one pound fifty each!

Angus

Not to me they're not.

Donald

But man I need the money!

Angus

Do ye really really need it Donald?

Donald

Aye I do, Angus.

Angus

Then on mature consideration I'll revise my offer

Donald

You're a good friend Angus.

Angus

To ninety pence a share.

Donald

(Forgetting to be Scotch)

You utter bastard.

(The newsboy is heard outside again)

Newsboy

Evening Telegraph! Special Edition! Wee Willie Killicrankie of Perth is buying Alliance Trust shares! Wee Willie is buying at one sixty!

Donald

A buyer at one sixty! I'm saved!

Angus

One sixty! I’m having to pay a premium! (Digs deep in his sporran and counts out groats) I'll take eleven.

Hoot hoot!

What the above exchange illustrates is that:

When you buy Investment Trust shares, you are buying shares in the company, not in the underlying assets.

And the share price will be governed, partly at least, by the number of people who want to buy them.

This means that bargains are sometimes to be found!


Let's find a bargain here and now!

One of the most successful of the "unit trusts" is Invesco Perpetual High Income. I mentioned it in Seminar 3. It has one of Britain's outstanding fund managers, Neil Woodford.

You can buy these units today and you will get excellent value. They are £285.44 pence a share (you will pay fractionally more to cover costs) and because of the falls in the markets last year they are yielding 4.25%.

The fund has a 5% entry fee (which with Moneybox Man's advice can be avoided, see Seminar 3) and 1.5% a year running cost (you can get some of this back as described in Seminar 3)

However!

Let us wander northwards again, this time to Edinburgh, to the long established (1889) Edinburgh Investment Trust.

The trust has performed faithfully down the years, like most of its ilk. But it has not been exciting. Last year, disappointed by its performance, the directors appointed a new manager.

Not a man in a garret with a candle and no coals but...

Neil Woodford of Invesco Perpetual!

Yes, they took out a management contract with Invesco Perpetual, who quite like having a few investment trusts in their stable, and who used the lure of Neil Woodford to entice the dour Edinburgh Trust in.

Shares in Edinburgh Investment Trust are today 355p.

But the NAV of the shares is 390.95p.

The shares are therefore at a discount of 9.2%.

You can thus buy just over £109 worth of shares for every £100 pound you spend! And you get Neil Woodford! And you get a yield of 4.4%!

How's that for a bargain?

Looking at the figures:

You want Neil Woodford to manage your money, and you have £5,000.

You can either:

Invest in Invesco Perpetual High Income (via a discount broker), and get £5,000 of assets yielding 4.25%

Invest in Edinburgh Investment Trust (via an on line broker for £12.50) and get £5,494 worth of assets and a yield of 4.4%

With the Edinburgh Trust you also have:

The possibility that with Neil Woodford as manager, the discount on the NAV will continue to close - and thus give an extra fillip to the share price.

Lower management fees - 0.6% plus performance bonus* with Edinburgh, compared to at least 1% with Invesco Perpetual High Income Fund.

More examples from Moneybox Man to come!


* This is the deal Edinburgh's canny directors did with Invesco Perpetual:

Invesco Perpetual is entitled to a management fee which will be 0.6% of the Funds market capitalisation. If the NAV (with debt at par) out-performs the FTSE All-Share Index (Total Return) by 1.25% per annum on a three year rolling basis, Invesco Perpetual will additionally receive a performance fee of 15% of the amount of the above-target out-performance, up to a maximum of 1% of net assets in any one year. The management agreement provides for three months notice of termination, subject to a minimum initial period of 12 months.