Investment Trusts - What are they?

Monday, 28th October 2019 13:35 - by Rajan Dhall

What is an investment trust?

This is where your money is pooled with contributions from lots of other people and used to buy a portfolio of investments.

The assets are chosen and managed by an expert team, who are in charge of the day-to-day running of the trust, deciding when to buy and sell investments. If they perform well, your investment may rise in value although there is no guarantee and you may get back less than your original investment as with any investment.

This is beneficial as you get access to a much wider and more diversified portfolio. More than you could hold on your own, as your money is pooled with contributions from many investors giving you a stake across hundreds of companies and therefore not reliant on the fortunes of just one or two businesses.

Investment trusts are structured as Public Limited Companies (PLCs) that are listed on a stock exchange.

Their prices are affected by supply and demand so the trust can rise and fall in value. This means that share prices may be higher or lower than the Net Asset Value (NAV). The NAV is the value per share of all the assets owned by the investment trust. This means If a trust has £1m worth of assets and one million shares, the NAV is 100p. 

There are times that a trust can be valued more than the assets they are holding and indeed less. This is all down to the performance of the fund managers.

So, you are investing in a portfolio you couldn't otherwise afford. You get access to a portfolio of investments run by fund managers. The important thing to remember is although they are like any other professional the asst values can fall and indeed rise like any other investment.

https://www.lse.co.uk/investment-trusts/

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.