What is an Investment Trust?
Investment Trusts are public companies that seek to make money for their shareholders by buying and selling shares in other companies or assets.
Investment Trusts are closed-ended, meaning that they issue a fixed number of shares, which can then be bought and sold on the London Stock Exchange and are required to produce regular financial reports and act according to strict regulations. Performance can be tracked daily on the stock market and fund managers provide regular updates.
Investment Trusts have been in existence for over 150 years, almost twice as long as open-ended funds and have become an increasingly popular choice with investors.
Like open ended funds they offer a wide variety of investment opportunities, from global trusts to specialist trusts focusing on one country or a specialist sector.
The value of the assets held by an Investment Trust is known as the net asset value (NAV). Shares in an investment trust may be priced in the market at a lower value than the NAV (known as trading at a discount) or for more than the NAV (trading at a premium).
The level of premium or discount changes on the basis of market sentiment toward the sector or individual Investment Trust. Investment Trusts are able to borrow money to invest, which is known as gearing. They borrow money to increase their investments and hopefully their returns, usually at a maximum level of 20%.
In contrast to open ended funds, Investment Trusts can keep up to 15% of their dividend income in reserve each year, rather than paying it all out immediately. This can then be used to supplement income payments in future years.
At Harris Allday, we have a long track record of Investment Trust investing. We’ve been investing in Investment Trusts for over 20 years, as we believe that there are many benefits to their inclusion within a portfolio and can be tailored to meet a variety of risk vs return profiles according to a client’s needs.
The information contained in this article is not an invitation to engage in investment. The value of an investment and the income from it can fall as well as rise, and investors may not receive back the amount they invest. Past performance is not a guide to the future.