Investment Trust

An investment trust is a public limited company that aims to make money by investing in other companies. Owning shares in an investment trust is a way of investing in a variety of different companies. An independent board of directors is elected by shareholders to monitor the performance of the company and look after shareholder interests

Investment trusts offer a wide range of opportunities to investors. There are a large number of global trusts that spread money across several stock markets around the world. Or you can opt for an investment trust in the one market – say the UK, or a region like the Far East.

Wherever you see an opportunity for long-term investment, you’ll usually find an investment trust specialising in that area. But be aware that when buying foreign investments, there’ll be currency risks to consider. A falling pound will increase your gains from foreign investments in sterling terms, while a rising pound has the opposite effect, lowering the value of your returns.

Key Features of an investment trust

• Pooled investment vehicle
• Diversified Portfolio
• When you invest in an investment trust, you become a shareholder in that company, giving you more rights and protection than unit holders in funds such as unit trusts. It also gives you the right to vote on issues such as the appointment of directors and key company policies, as well as the ability to attend the Annual General Meeting (AGM). Each investment trust has an independent board of directors which has been appointed to look after shareholders’ best interests.
• Run by investment professional
• By borrowing money (a process known as ‘gearing’), investment trusts can potentially boost returns, though it can also magnify losses.
• They’re able to retain up to 15% of their net income each year, giving them the ability to smooth these payments over the years. For example, they may be able to ‘top up’ the income that investors receive in years when the portfolio’s income is lower than average
• Can trade at a premium or discount to the value of their underlying investments
• Flexibility to invest in assets which trade less easily and frequently.
• They have a fixed number of shares (so they’re known as ‘closed-ended’), meaning they don’t have money flowing in and out unpredictably. This gives the portfolio manager a high level of control and the flexibility to build a long-term strategy, as they’re able to invest and sell when they feel the time is right.