Similar to funds, investment trusts are ‘collective’ investments which pool your money with other investors. A trust manager uses that money to buy and sell a wide range of investments on your behalf, in order to achieve a trust’s objective.
Investment trusts are structured differently to funds – they are listed companies with an independent board of directors and a limited number of shares available for you to buy (‘closed ended’). Similar to shares, the price changes throughout the day as the shares are traded, based on investor sentiment and the performance of the underlying investments.
It’s also worth bearing in mind that investment trusts have largely outperformed funds over the long term (10+ years).
Most investment trusts quote an 'ongoing charge', which is the estimated annual charge of holding it. This includes the annual fee paid to the fund manager, plus regular costs such as directors' and audit fees.
Premium vs. discount
Since the share price depends on supply and demand, investment trusts can trade at a premium or discount to the net asset value (NAV). This can create both opportunities and additional risk, since you could be buying for less or more than the value of the underlying assets.
Investment trust managers have the option to borrow money if they spot a good investment opportunity, but don’t have any spare cash. This can either magnify gains or losses.
If a trust is small or not traded frequently, it will have a larger gap between the buying and selling price (the ‘spread’).
Simply open an account and pay in some money. You’ll then be ready to buy and sell trusts online or over the phone (for no ewith us.
There are many investment trusts out there, so let us help you choose. Our preferred investment trusts are handpicked by our analysts for their strong management and long-term prospects.