With investment, your capital is at risk.
If you’re keen to include investment trusts in your portfolio or want to learn more about them, we can help you. Bestinvest offers a wide range of investment trusts together with plenty of information and insights to help you make informed investment decisions.
Using our investment search tool, it’s simple to:
- Filter search results to home in on investment trusts
- See headline numbers and detailed information on individual funds
- Spot which investment trusts are performing well
- Read up on Bestinvest’s favourite choices
- Buy investment trusts
What is an investment trust?
An investment trust is a type of fund that is structured as a company and listed on the stock market alongside household names like Tesco or BP.
You and other investors can buy shares in the investment trust creating a pooled pot of money. With that money, the trust’s management team use their expertise to invest in companies and assets that they believe are going to grow in value and are capable of making you a profit. Unlike open-ended funds such as unit trusts, investment trusts have a fixed pool of shares so, when you buy and sell, you are trading with other investors rather than the management company.
Trusts come in various shapes and sizes focusing on different sectors and regions such as bonds, Emerging Market companies or real estate.
Investment trust FAQs
What’s the difference between a fund and an investment trust?
Both funds and investment trusts allow investors to buy shares in them, creating a pooled pot of money. This is then used by the fund managers to invest in companies and assets that they believe will grow in value and make you a healthy return.
The main difference between the two is how they are structured. Funds are ‘open-ended’ which means that when you come along with your cash to invest, the manager creates new units for you to buy and the fund grows. An investment trust, which is a company listed on the stock market, is closed-ended with a fixed number of shares. These are traded on the stock market so, like shares, you can buy and sell them from other investors via a broker or online investment platform like Bestinvest. You can also buy them directly from the investment company that is offering them.
What should I consider before buying an investment trust?
As with any investment purchase you need to consider associated charges and fees. You should also carefully consider the assets that the trust invests in and the fund manager’s ability to increase their value. What is the performance track record of both the trust and the manager? You should also consider gearing.
What is gearing?
Investment trust managers can borrow money to buy more shares and holdings that they believe can benefit the portfolio. This is known as gearing. It’s important to consider the level of gearing when considering an investment trust – it may be fine when markets are rising and the extra shares add to returns but watch out for the potential for greater losses if the markets head south.
What is the role of the investment trust board?
Investment trusts are public limited companies and as such have a board of directors. It sets the investment policy of the trust and appoints the fund manager who makes the big decisions about which assets make up the portfolio. The board also determines the trust’s gearing policy, allowing it to borrow money to invest, and its dividend policy.
What is Net Asset Value?
The Net Asset Value, or NAV, tells you the total value of the trust’s assets per share and it is usually published every day. It can often differ from the trust’s share price which is an indicator of how much the market and investors are willing to pay. If the NAV is lower than the share price this is called trading at a premium and if it is above, then it is trading at a discount.
Where do investment trusts invest?
Investment trusts can and do invest in a range of industry sectors just like funds or ETFs. This can include UK or global shares, real estate, fixed income, country-specific investments such as Chinese equities, mixed assets, or ethical investment trusts.
Are investment trusts high risk?
The risk of a trust is largely determined by the type of assets it invests in and the strategy of the fund manager. An investment trust can be considered risky if its share price falls below your purchase price and stays there! If a trust also has to pay a high level of interest on its gearing this can impact the level of return. But high levels of gearing can also bring big rewards if the fund manager’s investment strategy pays off.