Why you might consider investment trusts for your portfolio
Investment trusts are the oldest type of pooled or collective investment vehicle. They have been around for more than 150 years, and are sometimes even described as "the City’s best-kept secret". But what is an investment trust, and why should you consider one as a potential home for your money?
An investment trust is a publicly-listed company that aims to make money for its shareholders by investing in other companies. Investment trusts are similar to other types of funds in that they pool money from many investors to buy a portfolio of assets. However, there are some key differences.
Unlike unit trusts and Oeics (which are 'open-ended' funds), investment trusts have a fixed number of shares (they are ‘closedended’). So the fund manager is never under pressure to sell assets, simply because investors are removing money from the fund. This means that investment trusts can take a long-term view, and are also able to invest in assets that would otherwise be very difficult or even impossible for private investors to access, including unlisted companies or hardto-reach areas of relatively exotic markets, such as China.
Managers can use borrowed money (leverage) to amplify returns during good times, although this can prove a double-edged sword if asset prices fall. Trusts can also retain part of their income each year, and use these
reserves to "smooth out" payouts to shareholders during tough years, meaning more consistent and reliable dividend income for investors.
As for buying and selling – shares in a trust are listed on the stock exchange, and are straightforward to invest in using an online broker. As with any other listed company, the share price is ultimately set by supply and demand for the shares. This means that the share price can diverge from the value of the underlying portfolio (the net asset value, or NAV). If the share price is above the NAV per share, the trust is said to be trading at a ‘premium'. If the share price is below the NAV, then the trust trades at a ‘discount’. On the one hand, this means investors have to be aware that the price can move independently of the NAV - on the other, an unusually wide discount can present opportunities for alert investors.
As a listed company, an investment trust is overseen by an independent board of directors who are responsible for representing shareholders’ best interests, which can involve - if necessary - challenging the fund management team's decisions. Boards also monitor discount levels and trust liquidity (ease of buying and selling) carefully. With larger trusts in particular, there should be no difficulty in buying or selling as desired.
In short, investment trusts are considered by many long-term investors to be a valuable part of their portfolios. Whatever your longterm goals, Fidelity’s range – from investment trusts that take a contrarian approach to buying undervalued companies on the London Stock Exchange, to trusts that invest in the best opportunities in Asian markets – offers the tools you need to both diversify and deepen your portfolio with some of the world’s most exciting asset classes and strategies. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. The value of investments can go down as well as up and you may not get back the amount you invested. Overseas investments are subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Some of Fidelity's trusts invest more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies.
“Investment trusts - the City's bestkept secret
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