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Investment Trusts Explained

Investment trusts and investment companies have a long track record of helping people to achieve their investment goals, whether it is for income, capital growth, or both.

What is an Investment Trust?

What are Investment Trusts and Companies?

Investment trusts are companies that are domiciled in the UK and invest in shares and securities of other companies that trade on stock markets worldwide. They are listed on the London Stock Exchange, are run by an independent board of directors, and their shares are traded on the open market.

The difference with an investment company is that they are domiciled outside of the UK, usually in Jersey or Guernsey

Why use Investment Trusts?

With their long-term approach, low charges, and wide choice of investment objectives, investment trusts and investment companies are ideal for:

Growing your wealth
Repaying a mortgage
Building a retirement fund – and providing income in retirement
Investing for children and grandchildren: school fees, university or a better start in adult life – the deposit for a house, starting a business, a car or even a trip around the world
A monthly savings option means it's easy to start and even small amounts can add up significantly over time.

Investment trusts and investment companies have a long track record of helping people to achieve their investment goals, whether it is for income, capital growth, or both.

They allow investors to pool their money together and spread the risk.

They have the same objectives as other collective investments such as unit trusts, but have several key advantages compared to other types of funds.

Key Benefits and Risks

Investment trusts and investment companies can be a particularly effective way to invest:

Closed-end structure allowing the manager to take a longer-term view without having to sell and repay investors
Listed on the London Stock Exchange, an Independent Board of Directors will look after shareholders' interests. They can borrow (known as gearing) in order to take advantage of opportunities and to maximise investment strategy
Investment trusts and investment companies trade at a discount or premium to their NAV (Net Asset Value) meaning that if they are trading at a discount to their share price you can buy at an attractive price (eg the share price is below the value of the underlying assets)
It spreads the risk by owning shares in a wide range of companies and sectors
Charges are generally lower compared with unit trusts and OEICs
Investment trusts and companies are eligible investments for Individual Saving Accounts (ISA) and Self Invested Personal Pensions (SIPP).
Buying any shares contains the risk that their value can go down as well as up, and you may not get your initial investment back. They do not guarantee a source of income.

How are Investment Trusts and Investment Companies priced?

The price of shares will depend on:

Net Asset Value (NAV) – the market value of the assets held by the trust or company
The level of supply and demand from investors

Full details...

The market value of a share is the reflection of what the market perceives it to be worth; an agreement between what price the seller is willing to sell it for and what the buyer is willing to pay for it.

However the investment companies value their portfolio of assets differently to the market; this is known as Net Asset Value (NAV). The difference between the market price and the NAV is known as a discount or premium.

If the share price is lower than the NAV, the trust is trading at a discount. This means you can buy into the stocks held by the trust or company – and the income they generate – at less than their market value. Generally an investment trust or investment companies shares are traded at a discount.

If the share price is higher than the NAV, it is trading at a premium. A small discount or a premium means the trust or company is in high demand.

There are many reasons why an investment trust or investment company trade at a premium or discount to the NAV:

Previous performance, either of a manager or board
Investors' views about a particular market the investment trust or investment company holds assets in, or a particular type of investment
The market not understanding the true value of the investment company or a belief that the NAV of the investment trust or investment company is not accurate

Investment Trusts vs. other types of investment

	Investment Trusts & Investment Companies	Unit Trusts	OEICs	Running your own portfolio
Wide spread of risk
Professional investment management
Income, growth or both
Often available at discount
Can borrow to maximise opportunities
Does not have to sell assets to repay investors
Independent board of directors
Low charges

The value of your investments and the income from them can go down as well as up. You may not get back the full amount you have invested.

Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.