BLOG: 5 things you didn’t know about investment trusts

Written by:
An Investment Trust is a collective investment vehicle, meaning people's money is pooled together and invested by a professional fund manager into a basket of assets, such as shares, bonds or property.

These little understood funds can be a useful addition to a portfolio and therefore it’s worth knowing a bit about them:

1. The first investment trust was the Foreign & Colonial Investment Trust, launched in 1868 and is still going today.

2. The price you pay for investment trust shares may not be the same as the value of the underlying investments.

An investment trust is known as a closed-ended fund. This means there are only a finite number of shares in issue and therefore supply and demand will affect the trust’s share price.

The value of the underlying investments is known as the Net Asset Value (NAV), and therefore if the investment trust share price itself is less than this, it is described as trading at a discount to NAV. If the share price is higher, it will be trading at a premium to NAV.

A discount may apply where the region, sector, or fund manager, is out of favour with the market; similarly a premium reflects a high demand for the investment trust shares.

3. Investment trusts can be a good way of investing in illiquid assets such as private equity or commercial property.

Since investment trusts are closed-ended and shares are traded between external parties, the fund manager does not have to sell assets to return an investors capital. Instead, the shareholder simply needs to find a new investor to purchase their shares off of them; usually facilitated by an exchange such as the London Stock Exchange.

If the underlying investments held by the investment trust are illiquid, the shareholder therefore still has the ability to sell their shares to anyone willing to buy them.

4. Investment trusts can borrow money to invest.

The ability to borrow money can significantly boost returns when a fund manager is looking to take advantage of a rising investment market, especially when interest rates are low. However, this can also amplify losses if the manager gets it wrong so something to watch out for.

5. Investment trusts are not allowed to advertise.

Which may be why you haven’t heard of them!

James Priday is Director of Strawberry Invest.

Related Posts

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

The essential Your Money guide to the April 2018 tax changes

As we head into the 2018/19 tax year, a number of key changes take place to existing policies while some new i...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Sharp fall in mortgage prisoner households – Countrywide

There has been a sharp fall in the number of households unable to remortgage, according to Countrywide’s latest Quarterly Market...