Both ETFs (Exchange-Traded Funds) and Investment Trusts are types of investment vehicles that allow personal investors to gain exposure to a diversified portfolio of assets, such as stocks and bonds, through a single investment.
Both can be bought by Irish residents online through stockbrokers or online investment platforms.
However, there are some key differences between ETFs and Investment Trusts .
An investment trust is a type of investment vehicle that pools the money of many investors to invest in a diverse range of assets such as stocks, bonds, and other financial instruments.
Investment trusts are set up as publicly traded companies that trade like any other stock throughout the trading day (referred to as a “closed-ended” structure). This means that investors buy and sell units in the trust at the prevailing market price, rather than a specified unit value. The manager of the trust manages a fixed amount of assets and does not need to reposition the portfolio in response to investor demand.
The shares of investment trusts are listed on a stock exchange with the share price subject to supply and demand. This means that during volatile markets the share price can vary markedly from the underlying net asset value (NAV) of the fund.
Where the share price is less than the NAV it is called a discount, and a premium when above.
An investment trust , unlike most ETFs , will be actively managed by a fund manager. This means that the contents of the trust/fund are often reviewed and can change over time.
The charges for an actively managed fund will usually be higher than that of a passively managed tracker/ ETF .
Charges on an investment trust tend to range between 0.5% – 2.00%. These costs will usually be included in the price of the product.
Most investment trusts quote an ‘ongoing charge’ which is the estimated annual charge of holding the investment trust. This includes the annual fee paid to the fund manager for managing the portfolio, plus regular recurring costs such as directors’ fees and audit fees. Some investment trusts also charge performance fees which are paid to the manager if they meet certain targets.
Investment Trusts are not to be confused with Investment Funds
Investment Funds are the products offered in Ireland by companies such as Zurich, Aviva, Irish Life etc. They deal directly with the public and through financial advisors. You can’t buy these on the likes of Degiro or Etoro.
Investment funds are “Open-ended” which means that shares can be created or cancelled depending on investor demand. They only issue one price per day, and to deal you would usually have to place your investment instruction the day before, so you don’t know precisely what price you’re going to get.
Investment funds usually come with an annual fund management fee of between 1% and 2% . So -if it was 1.5% and you invest €10,000 , the fee would be €150 a year.
There is a 41% tax on any gains you make. (This is deducted every 8 years or when you cash in the investment.)
Exchange Traded Funds
ETF stands for Exchange Traded Fund . As its full name suggests, an ETF is an investment fund whose shares can be traded on an exchange.
Exchange Traded Funds (ETF) are essentially portfolios of shares managed by an investment professional. Shares in an ETF can be bought and sold through a stockbroker just like shares in any company. Some people refer to them as Index Funds .
ETFs are structured as open-ended investment funds, meaning that the number of shares in the fund can be increased or decreased as demand from investors changes.
Investors acquire or sell units in the fund at the current unit value, i.e. the price of the unit directly reflects the value of the fund’s holdings. As a result, in a fund structure, the manager needs to invest or liquidate holdings to match investor inflows or outflows.
Read more about Buying ETFs in Ireland
Where can Irish Residents Buy Investment Trusts ?
Several Investment Trusts are available to buy on the London Stock Exchange through DEGIRO – a European online stockbroker. Degiro, with over 2 million customers, is one of the biggest online brokers in Europe and has been operating since 2013.
Examples of Investment Trusts Available on Degiro Ireland
Some popular UK based Investment Trusts include:-
- Scottish Mortgage Investment Trust (SMT)
- aims to identify, own and support the world’s most exceptional growth companies. future of our economy. (Higher Risk)
- Edinburgh Worldwide Investment Trust (EWI)
- Its investment objective is the achievement of long-term capital growth by investing primarily in listed companies throughout the world.
- MONKS INVESTMENT TRUST (MNKS)
- They invest across the globe to achieve capital growth, which takes priority over income and dividends. The Company seeks to build a diversified portfolio of global equities that is well placed to capture growth resulting from structural economic and societal changes.
- JP Morgan American IT Plc (JAM)
- The Company’s investment objective is to achieve capital growth from North American investments by the outperformance of the Company’s benchmark. It aims to outperform a benchmark, which is the S&P 500 Index
- JPMorgan Global Growth & Income (JGGI)
- They aim to provide superior total returns and outperform the MSCI All Country World Index over the long term by investing in companies based around the world.
- F&C INVESTMENT TRUST (FCIT)
- Their aim is to secure long-term growth in capital and income from an international diversified portfolio of listed equities, as well as unlisted securities and private equity with gearing.
- Pershing Square Holdings (PSH)
- A British investment trust dedicated to long-term investments in North American companies
- The Baillie Gifford Japan Trust (BGFD)
- aims to achieve long-term capital growth principally through investment in medium to smaller sized Japanese companies.
- Bankers Investment Trust (BNKR)
- This company aims to achieve capital growth in excess of the FTSE World Index and annual dividend growth greater than inflation, by investing in companies listed throughout the world.
- Keystone Investment Trust (KPC)
- The Trust invests in shares of companies of any size, in any country and in any sector, whose products or behaviour make an impact on society and/or the environment.
- Finsbury Growth + Income Trust (FGT)
- their policy is to invest principally in companies either listed in the UK or otherwise incorporated, domiciled or having significant business operations within the UK.
- Mobius Investment Trust (MMIT)
- aims to invest in a diversified portfolio of companies exposed directly or indirectly to emerging or frontier markets
All of these investment trusts were available to buy on Degiro for Irish customers when we checked. (September 2023) .
Fees on Degiro When Buying Investment Trust Shares
For UK Investment Trusts on the London Stock Exchange – Degiro charges Irish residents €3.90 per trade plus €1 handling fee plus 0.25% currency conversion. There will also be a €2.50 annual fee for connecting you to the London Stock Exchange.
Example : Buy 100 Shares of SMT at £7 a share for £700 , keep for 5 years and sell for £1000
Trading fees :
Purchase = €4.90 plus currency conversion of €1.75 = Total €6.65
Sale : €4.90 plus currency conversion of €2..50 = Total €7.40
Exchange connection fee €2.50 a year connection fee = €12.50
Grand Total = €26.55
Please note that Investing involves risk of loss.
Investment Trusts Available on Etoro
There are fewer London listed Investment Trusts available on Etoro compared to Degiro – but these were available at the time of writing. (Sept 2023)
- Scottish Mortgage Investment Trust
- Monks Investment Trust
- City of London Investment Trust
- Mercantile Investment Trust
- Aims to achieve long-term capital growth from a portfolio of UK medium and smaller companies.
- Pershing Square Holdings
- A British investment trust dedicated to long-term investments in North American companies.
Example of fees when trading UK Investment Trust shares on eToro
Buy 100 Shares of SMT on Etoro at £7 a share for £700 , keep for 5 years and sell for £1000
Trading fees :
Purchase = €0
The shares are priced in GBP but the trade is carried out in USD (No conversion fees).
Sale : No fees
Withdrawal fee $5
Grand Total = $5 USD
Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees
How Are Investment Trusts Taxed in Ireland
If you buy shares in Investment Trusts – there are no specific guidelines from Revenue on how they are taxed in Ireland. However, the consensus seems to be that they are treated in the same way as buying shares in any company. Therefore – any dividend income should be declared and will be taxed at your marginal rate of income tax + PRSI + USC .
Any capital gains made on the sale of Investment Trust shares will need to be declared and will be taxed at the CGT tax rate of 33%.
(First €1270 of gain a year is exempt).
In addition, where the disposal of the shares in an Investment Trust gives rise to a loss, this should be considered a capital loss for Irish CGT purposes.
Investment Trusts are NOT treated the same way as ETFs for tax purposes.
(This is our opinion – and is not financial advice)
How are ETFs Taxed in Ireland?
There is no separate taxation regime specifically for ETFs.
They are classed as collective investment funds and generally come within the tax regimes set out in the Taxes Consolidation Act 1997 for such funds.
The domicile (location) of the ETF will generally determine whether the ETF falls within the domestic fund regime or the offshore fund regime.
The domestic fund tax regime applies in the case of an Irish-domiciled ETF (or a foreign-domiciled ETF that is deemed equivalent to an Irish-domiciled ETF. (By Revenue))
Income and gains arising from investments into “domestic” ETFs are subject to an exit tax at a rate of 41% on a self-assessment basis. They are not subject to PRSI or Universal Social Charge (USC) .
Deemed Disposal and ETfs
To prevent the indefinite or long-term deferral of this 41% exit tax, disposal is deemed to occur every 8 years.
This deemed disposal means you’ll have to keep track of all your ETF purchases and work out any profits every 8 years and hope you have enough cash available to pay Revenue the tax of 41% of the profit.
Where the offshore fund regime applies, the applicable tax treatment will depend on the location and nature of the fund.
A big concern is the difficulty in determining whether an ETF comes within the offshore funds regime or not and if so, which category and tax treatment is appropriate. While Revenue publishes guidance for taxpayers, practitioners and investors, it is not possible to provide comprehensive guidance for every single product.
We cannot provide tax advice. You will need to speak with your tax or financial advisor.
More information here about ETFs and Taxation in Ireland
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest, the value of your investment will rise and fall, so you could get back less than you put in.