THE FIXED TRUST

Evening Post, Volume CXVII, Issue 106, 7 May 1934, Page 12

THE FIXED TRUST

HGW ITV WORKS

FOR AND AGAINST

''Evening Post," May 7.

- Considerable, attention—and, that not I onl£ of investors—is being paid', in Eng- ! land to the- fixed trust movement and its ■growth. The fixed trust system has been inoperative in the United States for a num£ber of years, but it is comparatively new to Great Britain. Up to 1933 there were but three such trusts operating in England, but since then their , number has 'largely increased and today it is estimated ■ that: fully £8,000,000 is invested through .r trusts of this description; The London ; Stock Exchange Committee is investigating .the whole subject of fixed trust. -Today prices of some seven or eight fixed .trusts' are regularly quoted in the London Press, and recently at price* ranging from 19s to>. 39s 6d, yielding, on market prices, from £3 7s 6d per cent, to £4 7s lOd per cent.

; A London financial journal has y described the working of the system as follows:—From 20 to 25 investments are , bought in, more or less equal amounts to a;:total rvalue o£ from. £4000 to £5000. -thus forming what is termed a "unit." Each unit is then divided into sub-units which, are represented ;by certificates, either in bearer or registered form, and it is these sub-units that are bought by investors and the prices of which are quoted from day to day. The number of units bought depends on the number of sub-units required by the investing public} but apart from this a limit is.imposed by some of the trusts on the total number of, units.* to be acquired. The investments' bought by these trusts are settled by a trust deed on some "bank which acts as trustee and accepts "the responsibility for the distribution .half-yearly of , whatever dividends are received.: ■ . . KIND OF INVESTMENTS^ investments held by fixed trusts include, gold and other mining shares or will consist almost entirely of ordinary shares. It; -'is: claimed for the" trusts that they perform a -useful function in that they enable.a small investor to take an interest;-.™ .equities with a wide . distribution or_ risks that could not possibly be attained if he bought, the individual investments, rvlt.is also claimed that the purchase _of. sub-units enables an inexperienced investor in ordinary shares to avoid making-the'-mistakes he would be liable to. make-.unless .he acted under skilled advice.. . - .-.;'. But on the other-hand the purchase of fixed trust ■sub-units"has been criticised as i an'expensive, way of'acquiring an interest; in\ shares held.by.,the trust. The price'-of*the sub-units' is based on cost of individual . investments and to this is added;a'service charge,'which appears to varyfromS per cent: t0,7% per cent. This addition covers cost of management during the whole life-time of the trusts, namely, twenty years. If regarded from that point of view the charge is not unreasonable. On the other hand, it means that an investor who wishes to buy through the medium of a fixed trust £100 worth of equities has to put down from £105 to £107 10s in cash for the purpose. It has been remarked that it seems illogical to pay-at the outset for cost of management during the whole of so long a period as twenty years.-

SOME DISADVANTAGES. - It has also been suggested that there is a danger of. too .large a proportion of shares of certain companies coming. under control of'fixed trusts so that buying and selling operations of trust managers would unduly affect the market for those snares. Another disadvantage- (as. it has.been termed) in the system is.that there is a lack of flexibility, although it is claimed as a virtue that the investments held are fixed" and cannot be altered. In certain circumstances they can, however, be sold. The restrictions imposed on trustees in this matter vary to some extent. It is admitted, however, that the established fixed trusts, in spite of certain de-, fects, answer a useful purpose. They may be rather: expensive, but the amount of the service charge is small compared with, the loss an-investor may sustain: if, he buys ordinary':shares and is unfortunate in his selection. - - -.-..,'

The investments. chosen by the English trusts have been deserib'ed as mostly sound stocks giving a good distribution "of risks,: and it is reasonable to hope that when a real industrial recovery has taken place their prices will be at a. higher level and that the sub-unit holders will benefit by increased dividends. •