www.InvestmentGuide.co.uk

Other types of Offshore Funds
Investment Trusts
Unit Trusts
How Best to Invest in Stocks and Shares

OFFSHORE OEIC

Exchange Traded Fund or iShare

(Also called ETF.)

Funds which aims to duplicate the growth of a stock exchange index, usually an index of ordinary shares. This way the fund is always invested in shares so it should not underperform the market because part is in cash on deposit. They work like Index Tracker Funds except that as far as an individual investor is concerned they are closed ended, like Investment Trust Shares, rather than open ended like unit trusts or OEICs. There are Exchange Traded Funds for stock markets in the UK, Europe, Japan and the Far East and for the US and different indices and sector indices in the US.

These funds are linked to an index of share prices, not retail prices. So they can go down as well as up. Because the funds are closed-ended, the shares can rise to more than the underlying assets, when they are said to be at a premium or fall lower than the underlying assets when they are at a discount. However institutions deal in iShares or ETFs as if they were open-ended. As a result the funds are unlikely to go to more than a very small premium or discount to the underlying or net asset value of the shares it invests in.

Who can invest Anyone.

How worthwhile Good value if you want a tracker fund. The funds are mostly quoted in the USA. A few are quoted in the UK, see Shares Exchange Traded Fund. Also compare with Unit Trust or OEIC Index Tracker where there are funds tracking some overseas markets.

Minimum None but you wil have to pay a minimum commission of around US$15- $30. Most are denominated in US $ .

Maximum None.

Suitable Lump sums.

Money back Usually immediately at the market price.

Interest Variable. Some indices, e.g. biotech or Nasdaq have few companies which pay dividends in which case there will be little or no income. If there is, it is distributed and is called dividend or distribution. You hope to make a capital gain by selling for more than you buy; you may lose money.

Interest paid Quarterly or half-yearly by cheque to you or accumulated.

Tax Not deducted although some of the underlying shares may have had a withholding tax deducted from the income if you are entitled to income. If you are a UK resident and a taxpayer you are liable to pay tax on the income. Basic taxpayers pay 20% tax; higher rate taxpayers pay 40%. If the fund invests wholly in UK shares, the dividends have tax deducted at source and your income tax position is exactly the same as with a UK authorised unit trust or OEIC. If the fund accumulates more than 15% of its income UK residents are liable to income tax instead of capital gains tax on any gain you make when you dispose of your units or shares.

Fees to pay Initial charge: Stockbrokers commission, usually upt o US$30 oper transaction each time you buy and sell. Yearly charge around 0.15% deducted from the fund - possible hidden charge if the income from the fund is taken by the managers.

Passbook None.

Children Unsuitable.

Risk High. The price of units fluctuates down as well as up. There is a chance that the managers will run off with your money but not if the fund is recognised in a territory with a compensation scheme. The assets are sometimes held by a custodian which acts rather like a UK unit trust trustee although in offshore centres the custodian is usually part of the same group of companies which manages the fund.

How to invest Find out what funds are available if you are on-line from Barclays Global Investors, Vanguard and other managers. You buy and sell through a stockbroker. You can sell the shares short as well as long, if your stockbroker allows it.

Where from A stockbroker, possibly an on-line one, which deals in US shares.

Other types of Offshore Funds
Investment Trusts
Unit Trusts
Contents
Get the whole site by E Mail or on Disc

Last updated 7 June 2001