A Comprehensive Guide on Investment Trusts


    Investment trusts are an excellent way to invest, whether you’re just starting out or already have a solid portfolio. However, there are some quirks and features surrounding them making it important to do your homework in order to comprehend what you’re getting into. This comprehensive guide aims to show you how to pick the best investment trusts.

    How Does the Trust Invest?

    The strange thing about investment trusts is that most of them have a title that does not reveal much about what they do. Monks is not linked to the church, Temple Bar isn’t related to the famous drinking spot in Dublin and Scottish Mortgage does not entail investing in mortgages.

    As such, it is imperative to look beyond the investment trust’s name and look at what it really does to see if it matches your needs or goals. It could be income or growth, low risk or high risk. There are numerous options, one of the best being the Lowland’s Investment trust and so, it is important to understand what you are looking at first. Find the Lowland Investment Trust share price here.

    Who’s the Manager?

    This is the next most important element to look at when it comes to picking an investment trust. Trusts are run by independent boards, similar to companies. These boards have the power to hire and fire the trust or fund managers.

    As such, when checking past performance, it is imperative to make sure that the track record related to the current managers. That’s because most of the investment trusts today have changed those who run them.

    When assessing the fund manager, you should focus on how they invest in order to know whether the trust is designed to meet your needs. This entails looking at the type of investment they purchase, where they invest geographically, how much they risk as well as what companies they invest in.

    What do Company Accounts Show?

    Since investment trusts are companies they need to produce a set of accounts and reports twice per year. These documents contain an explanation from both the fund manager and the board regarding what trust does as well as how it goes about it.

    These documents are an excellent starting point for investors who are looking to invest even if all the numbers may not make sense.

    Does the Trust Have Debt?

    Another feature of investment trusts is their ability to borrow money in order to boost returns- something referred to as gearing. Most trusts take this approach, but it is imperative to keep in mind that just as it can bring good returns, it can go the other way.

    As such, you will want to look at the current gearing level and how the fund manager has utilized it in the past. This is an excellent way to know the level of risk the manager takes.

    Does it Trade at a Premium or Discount?

    Investment trusts also have varying features to open-ended funds and one of the main differences is that they can trade on a premium or discount. Investment trusts are traded on the stock market and so, their price sometimes does not reflect the value of the underlying investments.

    If the price is below the assets’ value, it’s known to be trading at a discount. If it’s above, then it’s trading at a premium.

    With this information, it is of paramount importance to know how the trust has traded both in the past and in the present. Trading at a huge discount might seem like you’re getting a bargain, but they might be a reason why the price does not reflect the assets.

    Similarly, if the trust is trading at a premium, you need to ensure you’re ready to pay more than what the underlying asset is worth. Both situations are common. Neither are bad, but comprehending why a trust is traded as such is important if you want to make an informed decision.

    Investment trust boards usually have a stated policy around the premium or discount and so, getting this information will help you guess what the premium or discount could be down the line.

    How Much Does the Trust Cost?

    One of the major benefits of investment trusts is that they usually cost less to own compared to open-ended funds. The ongoing charge figure reveals how much an investor paid over a period of one year. The average equity investment trust in the UK has an ongoing charge figure of 0.7% compared to 0.9% for the average actively managed open-ended equity fund in the UK.

    This might not seem like much of a difference, but in the long haul, this can have a huge impact on your investment portfolio. The lower cost is partly because of the independent board who negotiate fees with fund managers as well as lower running costs because of structures designed to keep aspects such as marketing and sales down. However, it’s important to


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