Investment trusts are the best way to enjoy exposure to various companies or bonds in a product. They are run by fund managers who will make the relevant investment decisions. Currently, there are more than 300 trusts available to UK investors and they cover various sectors, themes and geographies.
Compared to investment funds, these trusts trade on the stock market. As such, their share price can change throughout the day. However, investment trusts have a lot of advantages compared to investment funds. For instance, there is an independent board of directors who can make sure that the fund manager does exactly what they are required to do.
Investment funds will issue new units once an investor deposits cash. Also, they will redeem units when an investor plans on selling. As such, there is always a constant flow of money in and out. On the other hand, investment trusts have a fixed number of shares that have been issued. As such, you will buy stock from a different investor then sell them back in the market. The only job of the fund manager is to run the portfolio.
Unlike traditional funds, these investment trusts can borrow money to boost their returns from their portfolio through making more investments. However, it might work against them when the markets fall. Look through investment trust factsheets to find out the gearing figure and identify the borrowing levels. You should also be able to find this information on the investment platform provider’s website.
Investment trusts provide the best information to investors such as articles, videos and greater commentary in the media. As such, it’s easier to understand what is going through the mind of a fund manager. Some of the popular investment trusts include F&C (FCIT). It invests in more than 450 individual companies globally. Another popular one is Scottish Mortgage (SMT) which supports developing companies that have the potential or are already market leaders in their fields.
There is also Finsbury Growth & Income (FGT) that offers stakes in high-quality businesses. Finally, there is the City of London (CTY) which supports multinational companies, especially those listed on the UK stock market. And find out more about Henderson high income trust share price.
What Type Of Trust Would You Like?
Go through the official AIC (Association Of Investment Companies) website to find the most useful information on how to choose the best investment trusts. You can choose whether you want to grow your investments, generate income or both options. Choose the relevant box and a lot of relevant investment trusts will come up. You can also search using the sector such as companies in North America or Asia Pacific. Even better, you can choose companies that help protect the environment, tech stocks or property firms.
Next, you will get the charges, dividend yields and information about the performance of each trust for different periods in the past. You should also get information on whether you can buy the investment trust for more or less than the value of the underlying assets (usually referred to as NAV or net asset value). Keep in mind that since the share price of investment trusts is dictated by how much investors are willing to receive/pay so at to sell or buy, they can trade at a discount/premium to NAV.
Investment trusts with highly-respected fund managers often trade at a premium price. That’s because investors are always happy to pay something extra to access their services. Infrastructure trusts trade above the value of their assets since the investors can pay a premium to access reliable dividends. Private equity and smaller company focused investment trusts trade below the value of their underlying assets.
That’s because the market assumes that if everything closes down, it would be tough for these trusts to sell everything quickly. The rest of the trusts are in line with their underlying assets because of the discount control policy. As such, the trust will purchase shares in the market and cancel them if they trade for less than the value of their assets. They can also issue new shares if they are trading at a premium.