AdviceOnline
Investment Trusts
AdviceOnline Investment Trusts
AdviceOnline
provide quality information on Investment Trusts
Investment
trusts have featured prominently in the media during the past
year due to the "it's" campaign. But what are they?
Investments
trusts basically issue shares, which are traded on the stock
market. But these companies don't manufacture anything or
provide a service; instead, they make their profits by investing
in the shares of other companies, either in the UK or further
afield.
A
ready-made portfolio
Essentially
then, an investment trust is a ready-made investment portfolio.
Investment trusts have more freedom to invest in, for example,
unquoted companies and companies 'unrecognised' by stock exchanges.
Like normal companies, they can also borrow money to 'expand'
their business.
Closed-end
fund
An
investment trust is a closed-end fund: once its shares have
been issued, that's it. No new money goes into the fund, and
any investor who wants to buy into the trust must buy shares
from someone else. This means that the manager has a fixed
pool of money to manage, so there is not the same degree of
risk that performance will 'fluctuate' because the fund has
become too large.
A
final, but very important, point is the relationship between
an investment trust's share price and its underlying assets.
The price of investment trust shares will be governed by what
investors are willing to pay for them. Trusts whose share
price has fallen below the trust's net asset value (NAV) are
said to be trading at a discount.
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