Question
I have set up a direct debit with JP Morgan to buy shares in the JP Morgan Global Emerging Income Trust (JEMI). They are now starting a C shares issue. What are these and should I change my direct debit to buy these instead?Answer
When investment trusts want to attract more money under management, they need to issue more shares. But unlike unit trusts, they can't simply create extra units/shares on demand, it needs to be via a formal share issue - with 'C' shares the usual route to doing so.
C shares are a short term home for new subscriptions. Once money is raised and invested, then the C shares are converted into ordinary shares in the main investment trust. Why go to all this bother? It makes life much simpler - the shares can be offered at a fixed price then converted at the prevailing price later on, plus it avoids affecting the performance of the existing investment trust by suddenly injecting a whopping amount of cash and existing investors partly having to foot the bill for stamp duty and dealing charges on new investments purchased.
JP Morgan Global Emerging Income Trust (JEMI) C shares are scheduled to be offered at 100p each on 13 April, with the conversion rate into ordinary shares calculated on 3 May and actual conversion taking place on 17 May. The trust is aiming to raise £200 million.
When buying C shares there'll be an initial charge of 1.62%, so every 100p invested will buy 98.38p worth of shares. The minimum investment is £1,000.
The potential advantage of buying C shares is avoiding the current premium to net asset value of around 4% on JEMI shares. In English this means the shares currently cost about 4% more than the value of the underlying investments, largely because it's a popular trust with more buyers than sellers - hence the extra share issue.
When the JEMI C shares are converted into ordinary shares, they will buy those shares at net asset value, not the prevailing share price, hence avoiding any premium there might be at that time.
Should you buy C shares instead? It's not feasible to do so with a monthly direct debit as this is a one-off issue with a £1,000 minimum investment. If you were investing a lump sum then it is arguably worthwhile in order to avoid paying a premium for the existing shares, but given the initial charge on C shares and relatively small premium on existing shares we're not talking about a big difference. In any case, the existing premium to net asset value may well decline by the time the C shares are converted, so ultimately I'd expect there to be very little in it.
I have set up a direct debit with JP Morgan to buy shares in the JP Morgan Global Emerging Income Trust (JEMI). They are now starting a C shares issue. What are these and should I change my direct debit to buy these instead?Answer
When investment trusts want to attract more money under management, they need to issue more shares. But unlike unit trusts, they can't simply create extra units/shares on demand, it needs to be via a formal share issue - with 'C' shares the usual route to doing so.
C shares are a short term home for new subscriptions. Once money is raised and invested, then the C shares are converted into ordinary shares in the main investment trust. Why go to all this bother? It makes life much simpler - the shares can be offered at a fixed price then converted at the prevailing price later on, plus it avoids affecting the performance of the existing investment trust by suddenly injecting a whopping amount of cash and existing investors partly having to foot the bill for stamp duty and dealing charges on new investments purchased.
JP Morgan Global Emerging Income Trust (JEMI) C shares are scheduled to be offered at 100p each on 13 April, with the conversion rate into ordinary shares calculated on 3 May and actual conversion taking place on 17 May. The trust is aiming to raise £200 million.
When buying C shares there'll be an initial charge of 1.62%, so every 100p invested will buy 98.38p worth of shares. The minimum investment is £1,000.
The potential advantage of buying C shares is avoiding the current premium to net asset value of around 4% on JEMI shares. In English this means the shares currently cost about 4% more than the value of the underlying investments, largely because it's a popular trust with more buyers than sellers - hence the extra share issue.
When the JEMI C shares are converted into ordinary shares, they will buy those shares at net asset value, not the prevailing share price, hence avoiding any premium there might be at that time.
Should you buy C shares instead? It's not feasible to do so with a monthly direct debit as this is a one-off issue with a £1,000 minimum investment. If you were investing a lump sum then it is arguably worthwhile in order to avoid paying a premium for the existing shares, but given the initial charge on C shares and relatively small premium on existing shares we're not talking about a big difference. In any case, the existing premium to net asset value may well decline by the time the C shares are converted, so ultimately I'd expect there to be very little in it.
Read this Q and A at http://www.candidmoney.com/questions/question425.aspx
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