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[sharechat] LEARNING TO INVEST: Barriers to sound investment ( 6 )

From: "G Stolwyk" <>
Date: Sun, 13 May 2001 21:33:58 +1200

Readers: The previous post in this series was dated May 13, 2001, time 00.02 hours. 
G: Continuing our discussion, I have a table from NAB and it lists the annual GDP growth ( % ) from:
Year                 1996  1997   1998   1999   2000   2001
NZ                     3.2     2.1   - 0.2      3.4     2.7
Aus.                  4.0     3.6     5.8      4.4     3.7
Unit. Kingdom    2.6     3.5     2.6      2.2     3.0
USA                  3.6     4.4     4.4      4.2     5.0
Japan                5.2     1.6   - 2.5      0.3     1.7
Germany           0.8     1.5     1.8      1.4     3.1
H: Australia kept going when the Asian crisis occurred in 1998-1999 !!!
G: Let us discuss investment in Europe, the Bastion of protection and self interest! They quickly forgot the contributions made by the NZ ers and Aussies during the wars!
What about those German farmers who were accused of trying to damage NZ interests some time ago in connection with the European foot & mouth problem!
H: Yes, but as our exporters are paying to get their imports into Europe, we need to get some of that money back!
I agree with the predictions that this Trading Block will become more important.
There will be problems to sort out when new nations are joining it. We also still don't know whether the Brits will accept the Euro currency. 
However, we want to spread the risks by investment in this area and diversify our currency at the same time! We have presented  evidence to show that this is necessary. I don't think that the NZ market - apart from takeovers - , is that healthy anyhow !       
Some of us will invest direct and take the risks while others will use Unit - and Investment trusts.
G: What is the difference between these two types? 
H: Investment Trusts tend to be more flexible, have lower costs and can perform better than Unit Trusts.
Sofar, a UK listed Investment Trust is exempt from tax on capital gains , otherwise is taxed as a company.
A unit trust has somewhat different rules as to taxation but there tends to be more money syphoned from the initial capital. Their running expenses tend to be higher and the price is not determined by the market.
Years ago, Craig & Co spent quite some time explaining some of the pitfalls of investment in Unit Trusts to investors who, till then, had accepted these as the norm.     
An Investment Trust is traded on the market and unlike unit trusts are closed - end funds: That can be an advantage when a big demand for these units will cause these to rise.The Manager is also able to borrow on a closed - end fund. He can also plan the affairs better as the number of units is static.
The investor can, as a rule, quickly trade the Investment units for cash on the market. An investor in a unit trust will have to wait till his units are redeemed by the Issuer. That can be a problem when the market is under siege and there are too many sellers. Think of the 1987 crash and its aftermath!
G: There is no need to discuss the difference between these trusts any further! I favour the UK listed Investment Trust.
I understand that there are some secondary listings in NZ?
H: Yes, there are. These Investment trusts invest in other companies and there are many available. Some make investments in English companies only, others invest in Europe, the US, Japan and other countries. Many are specialized.
The Edinburgh US Tracker Trust plc tracks the performance of the S& P 500 Composite Index. We have Pharmaceuticals and Technology Trusts as well; many other sectors are covered by these trusts!  
The important thing is to know the quality of the manager, the trust's record and the measure of premium / discount to asset backing. Obviously, a past performance does not guarantee future performance but it can assist in any decision making!  
G: It pays to read about these trusts; one can to some extent increase or decrease risk levels and expected rewards by selection of the appropiate trust.
What about investment in the US
H: We shall leave that to the investor to decide. There is always information available to those who want to invest there. 

Disclaimer. Readers are not asked to buy, hold or sell shares, units or any other financial instruments. To do so, will be entirely at their own risk. The contents of these 6 installments under this topic are my opinions and conclude this topic. They are not separate issues and ideally should be read as one continuous post or email!        

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