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UNDERSTANDING INVESTMENT TRUSTS
THE DIY INVESTOR PHENOMENON IS CHANGING EVERYTHING. IT IS BORN OF NECESSITY AND ENABLED BY
TECHNOLOGY DIY INVESTOR TV WILL LOOK AT SOME OF THE PRACTICAL ISSUES AROUND EMBARKING ON A SELF-
DIRECTED SAVINGS AND INVESTMENT REGIME AND WILL CONSIDER SOME OF THE SOURCES OF EDUCATION AND
CONTENT THAT WILL ASSIST YOU IN YOUR JOURNEY. AS WE INTRODUCE THE CONCEPT HENDERSON GLOBAL INVESTORS
OFFER THEIR TAKE ON INVESTMENT TRUSTS AND WITH THE FIRST OF OUR EMBEDDED VIDEOS
ALEX CROOKE, GLOBAL
EQUITY HEAD AT HENDERSON
,
DISCUSSES INVESTMENT FUNDS FOR YOUR PENSION WITH DAVID STEPHENSON
WHAT’S DIFFERENT ABOUT
INVESTMENT TRUSTS?
Both investment trusts and
investment funds pool together
money from different investors –
they are both pooled or collective
investments.
INVESTMENT FUNDS
Investment funds are known as open
ended investment companies or unit
trusts. The way these funds work is
that when someone new invests in the
fund new ‘units’ are created and the
fund grows in size. When an investor
leaves, the fund shrinks in size.
In extreme conditions if lots of people
move out of the fund assets must be
sold, potentially at a loss.
INVESTMENT TRUSTS
Investment trusts issue a fixed number
of shares and are sometimes referred
to as closed-ended.
To invest in a trust you buy shares
from someone willing to sell them.
In times of market stress, the fund
manager is not forced to sell assets to
release shares, as sellers need to be
matched to buyers.
WHAT ADVANTAGES DO
INVESTMENT TRUSTS HAVE?
GEARING
An investment trust is allowed to
borrow to enhance returns in rising
markets, to take maximum advantage
of opportunities.
This is known as gearing or leverage. If
a trust uses gearing in a falling market,
loses will be magnified.
INCOME MANAGEMENT
Unlike investment funds, an
investment trust does not have to
pay all of its income each year. It can
retain up to 15% to smooth out income
payments over time.
LONG-TERM VIEW
Because investment trust managers
don’t have to worry about investors
wanting to access their money, they
are more able to take a longer-term
view of the companies in which they
choose to invest.
