Introduction to Investment Trust Companies

An investment trust company is a type of investment vehicle that pools money from multiple investors and invests it in a diversified portfolio of assets. It is a closed-end fund that issues a fixed number of shares, which are traded on the stock exchange just like any other company's shares. Investment trust companies are managed by professional fund managers and have a board of directors that oversees their operations.

What is an Investment Trust?

An investment trust is a company that raises capital by issuing shares to investors. The money raised is then invested in a portfolio of assets, such as stocks, bonds, and real estate. Unlike open-end funds, which continuously issue and redeem shares at their net asset value (NAV), investment trusts have a fixed number of shares and trade on the stock exchange at a price determined by supply and demand.

How do Investment Trusts Compare with Unit Trusts?

Investment trusts and unit trusts are both types of collective investment vehicles, but there are some key differences between them. While investment trusts are closed-end funds that trade on the stock exchange, unit trusts are open-end funds that issue and redeem shares at their NAV. This means that the price of an investment trust's shares can deviate from its NAV, resulting in premiums or discounts. Unit trusts, on the other hand, are always priced at their NAV.

What can Investment Trusts Offer?

Investment trusts offer a number of benefits to investors:

• Easy access: Investors can buy and sell investment trust shares on the stock exchange, providing them with easy access to a diversified portfolio of assets.
• Simplicity: Investment trusts are managed by professional fund managers, which makes investing in them a simple and straightforward process for individual investors.
• Income potential: Investment trusts can provide investors with a regular income through dividends, as they often invest in income-generating assets such as dividend-paying stocks and bonds.
• Gearing: Investment trusts have the ability to borrow money to invest in additional assets, which can enhance returns in a rising market.
• Accountability: Investment trusts have a board of directors that oversees their operations and ensures that they act in the best interests of their shareholders.

How can I Invest in an Investment Trust?

Investing in an investment trust is similar to investing in any other company's shares. Investors can buy and sell investment trust shares on the stock exchange through a broker or an online trading platform. Before investing, it is important to research the investment trust's performance, investment strategy, and management team.

Can I Use my ISA Allowance to Invest in an Investment Trust?

Yes, investors can use their ISA (Individual Savings Account) allowance to invest in an investment trust. An ISA is a tax-efficient savings and investment account that allows individuals to invest up to a certain amount each year without paying tax on the returns.

Will I Have to Pay a Fee?

Yes, investors will typically have to pay a fee when buying or selling investment trust shares. This fee is usually a percentage of the value of the transaction and is charged by the broker or online trading platform.

Do I Get Dividends and When?

Investors in investment trusts are entitled to receive dividends, which are usually paid out on a regular basis, such as quarterly or annually. The amount of the dividend will depend on the investment trust's performance and the income generated by its underlying assets.

How can I Sell an Investment Trust?

Investors can sell their investment trust shares on the stock exchange through a broker or an online trading platform. The proceeds from the sale will be credited to the investor's trading account, minus any fees or charges.

What is the Role of a Fund Manager?

A fund manager is responsible for managing the investment trust's portfolio of assets and making investment decisions on behalf of the shareholders. The fund manager's goal is to generate returns for the shareholders by selecting and managing a diversified portfolio of assets.

What is the Role of the Board of Directors?

The board of directors is responsible for overseeing the investment trust's operations and ensuring that it acts in the best interests of its shareholders. The board is made up of independent directors who are elected by the shareholders.

What is Gearing?

Gearing is the practice of borrowing money to invest in additional assets. Investment trusts have the ability to borrow money to invest in assets that they believe will generate higher returns than the cost of borrowing. Gearing can enhance returns in a rising market, but it can also amplify losses in a falling market.

What is NAV?

NAV stands for Net Asset Value, which is the value of an investment trust's assets minus its liabilities. It represents the per-share value of the investment trust's underlying assets and is calculated on a regular basis, such as daily or monthly. The NAV is used to determine the price at which investment trust shares are bought and sold on the stock exchange.

What are Premiums and Discounts?

Investment trust shares can trade at a premium or a discount to their NAV. A premium means that the price of the shares is higher than their NAV, while a discount means that the price is lower. Premiums and discounts can occur due to supply and demand factors, investor sentiment, and the investment trust's performance.

What are the Risks Associated with an Investment Trust?

Like any investment, investment trusts come with risks. Some of the common risks associated with investment trusts include market risk, liquidity risk, credit risk, and currency risk. It is important for investors to carefully consider these risks and their own risk tolerance before investing in an investment trust.

How can I Monitor an Investment Trust?

Investors can monitor the performance of an investment trust by reviewing its NAV, share price, and dividend history. They can also read the investment trust's annual and semi-annual reports, which provide information about its investment strategy, portfolio holdings, and financial performance.

Conclusion

Investment trust companies offer investors a unique and accessible way to diversify their portfolios and potentially generate income and capital growth. By understanding how investment trusts work and the benefits they can offer, investors can make informed decisions about whether to include them in their investment strategy.