What is an Investment Trust?
An investment trust (or company) is a listed company with its shares quoted on a stock exchange. It invests in the shares of other companies or in fixed-interest securities, unquoted securities or property. As a quoted company, the share price of an investment trust is determined by the supply and demand for its shares on the stock market. An investment company has an independent board of directors who are responsible for looking after shareholders' interests.
An investment trust works by pooling together investors’ money and delegating responsibility to a professional Fund Manager to make investment decisions. This enables individuals with relatively small amounts of money to gain exposure to a diversified and expertly managed portfolio of investments.
The appointed fund management team, be it a single manager, co-managers or a team of managers, take an active approach. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. The opposite of active management is called passive management, better known as "indexing". In theory, an investor can achieve the same risk and return of an index by investing in an index fund, but charges are still made for index tracker investments that can impact on returns.
What are the main differences between Investment Trusts and Open Ended Investment Companies (OEICs)?
An investment trust or company is a closed-ended fund. It is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The company is then structured, listed and traded like any company listed on a stock exchange.
OEICs are open ended, which means that they can adjust the amount of shares in the fund by either issuing or redeeming shares. When shares are issued, the fund receives money and invests it. When redeeming shares, the fund pays out money from the fund.
Do investment trusts follow an index?
Investment Trusts are not index or passive funds but seek to beat their benchmark indices over all time periods, but particularly the medium to long term. For some Trusts, like Henderson Far East Income Limited, there is no comparable index to use.
Who sets the investment strategy?
The investment objective is set out in the prospectus when the company is launched. It can be amended from time to time, although shareholders are asked to vote on such changes if they are material. The investment policy sets out the approach the portfolio manager takes when making investments.
Who decides which shares to buy? On what basis?
Essentially this is the decision of the appointed Fund Manager, be that an individual, a pair or a team. Stocks are chosen based on a number of criteria, for example desk research or analysis, or industry forecasts, but always with the Trust’s objective in mind.
How are investment trusts regulated?
Investment Trusts are quoted companies listed on the London Stock Exchange with Boards of Directors who are elected by the shareholders; they are subject to the listing rules of the UK Listing Authority (UKLA) established under the Financial Services and Markets Act. Investment Trusts are also subject to the Companies Act 2006, as amended. Investment Trust managers are regulated and authorised by the Financial Conduct Authority in the UK.
How are dividend dates and rates calculated and by whom?
The frequency of dividend payments is usually determined when a company is first established but it can be varied by the board. It is the responsibility of the Board to determine how much of a company’s revenue is paid as dividends but in order to retain investment trust status every trust must distribute at least 85% of its net investment income as dividends.
What service do the company secretaries provide?
The team of qualified company secretaries provides a professional company secretarial service to the investment trusts to ensure that Board procedures are followed and that the trust complies with all applicable rules and regulations.
What role does the Board of Directors provide?
The role of the board of directors is to provide leadership and governance of the company in order to promote its success for the benefit of its shareholders. Directors’ duties are primarily set out in company law, the Company's Articles of Association and the Listing Rules of the UKLA and directors are appointed by, and answerable to, their shareholders. The directors of investment trusts, who are usually all non-executive directors, regularly meet with the investment manager to monitor investment performance and to provide strategic direction having due regard to management of risk and internal controls.
What role do the registrars play?
The Registrars maintain a register of the shareholders of each class of share. Investors buying through a Share Dealing Service will not have their names on the main register where there will be one shareholding for the Share Dealing Service. Instead their shareholding is carefully recorded in the register of the Share Dealing Service.
What is the Net Asset Value (NAV)?
Simply, the NAV is the available shareholders funds divided by the number of shares in issue.
Shareholders funds are the net value of the company’s assets, cash and other current net assets, having deducted all debt, including bank loans, at their fair value and taking into account whether the company has outstanding convertible loan stocks, warrants, options and treasury shares. Current financial year income is included.
The diluted NAV calculation assumes that holders of convertibles have converted, warrants and options have exercised, and treasury shares are re-issued at the mid-market price.
Why is the share price at a Discount/Premium to the NAV?
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 share 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's 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 demand. Supply and demand is dependent on a number of factors, including:
Can I invest directly with Henderson?
Investing in an Investment Trust managed by Henderson is achieved by using a share dealing service. We do not run our own share scheme or ISA. Choose which account is right for you, apply and then give your trading instructions online or by phone. Most share dealing services offer:
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A range of accounts including Self Invested Personal Pensions (SIPPs), and Individual Saving Accounts (ISAs)
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Immediate or regular monthly instructions
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The ability to trade and hold most other investment types in a single account.
To find out more please visit the How to Invest page.
Should I speak to an Independent Financial Advisor before making an investment?
If you are unsure about your personal investment needs, you should speak to an Independent Financial Advisor who will asses your individual circumstances before recommending financial products they believe are likely to meet your investment needs/objectives.
What are the charges/costs involved when I invest in an investment trust?
There are principally two costs: the running of the trust and the direct cost of investing. The costs of running a company are made up of fees it pays to the investment manager (either by means of an annual fee based on a percentage of assets under management, sometimes plus a performance fee paid when a trust performs in a certain way), and the administration costs of running the company. Direct costs of investing are commissions/fees charged by share dealing services, and Stamp Duty which is a UK tax on share purchases.
More information on fees/charges can be found on the ‘Investment Charges’ section on each trust website.
If I want to sell my investment, how do I go about it?
The process varies depending on which share dealing service you are using, and whether you are giving instructions in writing, over the telephone or online. Contact your share dealing service for more information.
If I want to sell my investment, how long will it take to receive payment?
Most UK share dealing services settle trades within 3 working days. It may take longer for funds to be moved from the share dealing account to your bank account. The process can take longer if you hold a paper share certificate.
What are the charges for selling my investment?
There is no immediate tax to pay (like Stamp Duty on share purchases) when selling shares. Most share dealing services will charge a commission or fee to make a trade. There may be further taxes to pay, capital gains tax, for example.
What paperwork can I expect to receive once I have registered to invest?
Regardless of how you have bought your shares, you are entitled to receive a Contract Note to confirm a purchase (or sale) has been executed. A Contract Note will state how many shares have been traded, at what price and show any associated costs. Some share dealing services give you the option to receive contract notes online to cut down on paper.
What relationship does Henderson Managed Investment Trusts have with share dealing stockbrokers?
Henderson does not have a direct financial interest in any share dealing services and does not receive any introductory fees from them.
How will I be kept informed about my investment?
Most share dealing services will send to you a 6 monthly statement and valuation which will show any purchases or sales of shares in the period, along with your total holdings and their value. In addition, many services allow you to access this information online at any time where you can get a more up-to-date valuation. In addition, share prices are available on our website, in newspapers and on the many share price information sites available. You will also receive a consolidated tax certificate (CTC) every year detailing the amount of any income received in the preceding tax year and any associated tax credit.
Can I invest on a monthly basis?
Most share dealing services will allow you to invest on a regular monthly basis. In most cases you set up a Direct Debit instruction and the money is collected from your bank account on a given day each month. Then once the monies are received, the investment is made. Whilst you do not get complete control over the share price at which the investment is made, charges for this kind of investment are usually much cheaper than making a real-time lump sum investment.
What is an ISA?
ISA stands for Individual Savings Account.
ISAs can be used to hold many types of savings and investment products. Any gains made from investments in an ISA are free from Capital Gains Tax (CGT) and the difference between your highest income tax rate and the 10% deducted at source prior to distribution.
Are there different types of ISAs?
You can choose between two types of ISA: cash ISAs and stocks and shares ISAs.
A cash ISA offers tax-free saving in a deposit account, usually run by a bank or building society. It will keep your initial investment intact, plus it will usually offer a higher rate of interest than similar taxed accounts from the same bank or building society. Some cash ISAs are instant-access accounts, others lock you in for a set period.
A stocks and shares ISA can hold an investment fund or funds, or individual stocks and shares, including investment trusts.
What is the min/max I can invest each month/per annum?
From 6 April 2011 the ISA allowance increased to £10,680 and up to £5,340 of that allowance can be saved in a Cash ISA with the same or another provider.
The maximum monthly investment in a stocks and shares ISA is £890 a month. The minimum depends on the limit set by your ISA provider.
How do I top up my existing ISA?
The options for topping up an ISA depend on your ISA provider.
Can I move between investments within my ISA and retain the tax efficient status?
Yes. You can buy and sell investments within an ISA as frequently as you wish. Any capital gains you make will be free from tax. Most ISA providers charge a fee/commission on selling/buying.
Can I transfer my existing ISA from another plan manager and retain tax efficient status?
Yes. Most plan managers accept transfers from other managers, and you can normally transfer both stock and cash without losing tax status or having to sell your shares first.
Can I transfer shares I already own into an ISA?
No, not unless they are already held in an ISA. If they are held outside an ISA, for example in a Share Dealing Account or as a paper share certificate, then you will normally need to sell the shares and subscribe the proceeds to an ISA. You can then use these funds to buy shares in an ISA.