CMC Invest, the direct-to-consumer investing and share trading platform, owned by CMC Markets has announced the addition of mutual funds to its product range. CMC Invest clients will now be able to choose from more than 1000 funds from a list of providers, that includes well-known managers such as Vanguard, Schroders and Baille Gifford.
CMC Invest & Mutual Funds
Mutual funds are similar to ETFs in that they are open-ended investment vehicles, which means that the number of units or shares in issue, in the fund, is directly correlated to the amount of money invested in the fund. As opposed to closed-end funds, such as an investment trust, which has a fixed number of shares in issue.
That means that the value of units (shares) in a mutual fund will rise and fall based largely on changes in the values, or prices of its underlying holdings.
Mutual funds are typically unlisted and traded over the counter, or OTC, with the fund manager, that runs the fund.
They may have daily or weekly liquidity, though some specialist funds may have different, limited, dealing windows.
Specific investment themes
Mutual funds are often designed and managed to capture the returns of specific regions, indices, sectors, investment themes, or asset classes. For example, a mutual fund might invest in Asian small-cap growth (ex Japan), or Latin American bonds.
Investors can use this focused approach to build a specific portfolio from mutual funds to match their investment needs.
Drawbacks to investing in Mutual Funds
There are a number of potential drawbacks to investing in mutual funds.
Firstly they can be expensive in terms of fees when compared to ETFs. Though it’s interesting to note that low-cost fund manager, Vanguard is among the providers chosen by CMC Invest.
Finding funds with low annual charges and good performance can make a big difference to the long-term growth of a portfolio thanks to compounding effects.
Mutual funds don’t trade on a stock exchange, so liquidity may only be available on a daily basis or less, and as the only marketplace is to be found with the manager, bid-offer spreads in mutual funds may be wider than those in an equivalent ETF.
Mutual fund investors might also like to consider the performance stats for actively managed funds, very few of which have outperformed the market/passively managed tracker funds consistently, or over any length of time.
This goes a long way to explain the flows in passive low-cost index-tracking ETFs.
CMC Invest Plus Only
One other interesting point about the mutual fund offering from CMC Invest is that it’s not open to all account holders.
Only CMC Invest Plus customers will be able to utilise the new service. CMC Plus is a premium tier subscription service membership of which is charged at £10.00 per month.
I am all for flexibility and choice when it comes to investing, however, I am not sure that the attractions and benefits of investing in mutual funds, on their own, are sufficient to merit opening, or upgrading to a CMC Invest Plus account.