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Offshore Funds
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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. A few are available in the UK, see Offshore Exchange Traded Funds. Compare with Unit Trust or OEIC Index Tracker. There is more choice of indices through a US stockbroker, see Offshore Exchange Traded Funds. A better alternative might be general Investment Trust Shares bought at a higher discount.

Minimum None but you will have to pay a minimum commission of around £10-£20.

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 If you are a UK resident and a taxpayer you are liable to pay tax on the income. Basic taxpayers will probably find the income comes tax paid for 20% taxpayers and higher rate taxpayers pay extra. 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.

Fees to pay Initial charge: Stockbrokers commission, usually £10-£20 per transaction each time you buy and sell. Yearly charge around 0.15%-0.85% deducted from the fund. There is no stamp duty when you buy shares (although changes in the underlying shares are liable to stamp duty and will reflect in the net asset value).

Passbook None.

Children Unsuitable.

Risk High. The price of units fluctuates down as well as up. The fund should be recognised but may be in a territory without 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 and LDRS. You buy and sell through a stockbroker.

Where from A stockbroker, possibly an on-line one.

Offshore Funds
Investment Trusts
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Last updated 28 April 2003