What exactly is an investment trust?

An investment trust is really a public limited company, their shares are quoted on the stock market.  An investment trust pools the cash of investors and uses fund managers to buy a wide variety of assorted companies.  You can gain cost effective exposure within a diverse portfolio of shares.  Even if you only have a smaller amount to invest.

Risk will be spread far more than investing in one individual company share.  If the fund managers purchase well, the price of the investment trust will increase, as a result so would the valuation of the shares within it. Investment trusts can can also invest money in property, bonds and cash.

Just how do investment trusts help investors?

Investment trusts can offer a low-cost, versatile and suitable approach to investment.  Different types of Investment Trusts suit different needs.

  • The first time investors.¬†A global trust could be an ideal first investment, as long as you can commit to at least 5 years.¬†It gives an immediate spread of risk across many of the world stock markets.
  • Opting for growth: Younger investors might look at trusts that targets growth. Such as an emerging markets investment trust. With a longer investment horizon, there is time to ride out some shorter-term highs and lows. A more¬†volatile fund¬†but has the opportunity for higher rewards in the long term.
  • Investing for income: Income-paying trusts can be¬†good for individuals approaching retirement or already retired. With time, the income available can potentially outpace inflation.
  • Saving for retirement:¬†You can purchase an investment trust via a personal pension or self invested personal pension (Sipp). Different investment trusts can be chosen to match risk and amount of time before retirement.
  • Investing for young children: Investing now for children¬†can provide a good financial¬†start in life. Although¬†money placed in¬†bank or building society account is simple and fairly safe it may be worth taking more risk since the rewards could possibly be much greater.¬† A child has a much greater time span to be able to benefit from higher risk investments.

Exactly what are the main kinds of investment trust?

Each investment trust comes with an objective.  Some look to maximise capital growth and some are looking for income.  Others look for a mixture of the 2.  All will clearly specify their objective.

  • Global generalists:¬†Usually larger trusts,¬†they purchase a wide range of companies over a global basis. They offer a cost-effective ready-made portfolio.
  • UK:¬†Specialising in UK investments only, these could target income, capital growth¬†or a mixture of both.
  • Country and sector specialists:¬†Specific geographical areas such as¬†the Far East, Europe or Latin America.¬†These tend to more volatile than global trusts as they don‚Äôt invest as widely.¬†They could, however, provide greater returns.¬† Economic sectors including smaller companies, property and financials are also available.
  • Split capital trusts:¬†These offer several categories of share, to match the differing needs of investors.


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