Tuesday, 26 July 2011

7th Day Growing Pain - Prove I'm wrong. (Funds and Bundlers)

I invest monthly via a very large UK discount broker. I invest in a variety of unit trust and OEIC funds.

Some of the funds I invest in are specialist and some are not. The money goes out of our bank accounts on the 7th of every month and the new units appear in my account between one and four days later.

There is something I think I have noticed and it has been a source of bemusement for a while.

I'm looking to be proved WRONG on this because I sincerely hope I am.

I usually check my account on the 7th to make sure the money has been transferred from our bank accounts to my discounter and then I check every day until the new units are nicely planted in the correct account. Of course, I use the opportunity to check the unit prices too.

Since discount broking via the internet hasn't been mass market for that long, I wondered about the noticeable effects this newish breed of internet discount brokers would have, if any.

The thing I think I've noticed is that many of the unit prices seem to peak on the day they are bought and fall back for the next few days,

I've noticed it particularly with specialist funds, where the underlying shares aren't so liquid and also, to a lesser extent with unit trusts and OEICs that invest in large, mature companies.

I assume when huge amounts of money is dumped into the stockmarket, as it is when everyone's units are bought at the same time, there must be some effect on the stockprice.

I've had a look on various charts for FTSE 100 companies and this seems to bear out my thoughts: a price peak around the 7th-9th followed by a falling back between the 8th and 10th, or thereabouts.

Obviously, an 'artificial peak' in share prices will have a knock on effect on the price of the units we're all buying as these same shares form our units.

If I am correct, which I'm not sure I am yet, then surely being concerned by 0.25% fees is as big an issue as buying when the share price is artificially higher than normal.

This is why I'd really appreciate someone proving me wrong.

What is your take?