What is an investment trust?
An investment trust is a type of collective investment that brings money from multiple investors together, to be invested in a portfolio of assets. These assets can include stocks, bonds, property and other securities.
Investment trusts are publicly traded on stock exchanges, and investors can buy and sell shares in them just like individual stocks. However, unlike stocks, which represent ownership in a single company, investment trusts own a diversified portfolio of assets.
What is the difference between an investment trust and an investment fund?
While investment trusts and investment funds are both collective investment vehicles, there are some elements that differentiate them. The key difference is that investment trusts are closed-end funds, meaning that they have a fixed number of shares that are traded on stock exchanges. In contrast, investment funds are open-end funds, meaning that they issue new shares to investors as demand for the fund grows.
Another key difference is that investment trusts are able to borrow money to invest in additional assets, while investment funds cannot. This can allow investment trusts to generate higher returns than investment funds, but it also increases their risk.
What are the key features of an investment trust?
- Diversification: Investment trusts offer investors access to a diversified portfolio of assets, which can help to reduce risk.
- Professional Management: Investment trusts are managed by professional fund managers who have expertise in selecting and managing a diversified portfolio of assets.
- Access To Specialised Strategies: Some investment trusts offer access to specialised investment strategies, such as emerging markets, private equity or infrastructure.
Compared to other investment vehicles, investment trusts also offer their investors some distinct advantages. For example, they typically have lower fees than actively managed investment funds, while offering the potential for higher returns.
What are the benefits of investing in an investment trust compared to buying individual stocks?
On top of their diversified portfolio of assets and professional management, which reduces risk and promotes higher returns, investment trusts are generally more liquid than individual stocks, which can also make them easier to buy and sell.
What are the fees associated?
The fees associated with investing in an investment trust can vary, but typically include an annual management fee, which covers the cost of managing the fund, as well as other expenses like marketing and administration costs. Additionally, investors may be subject to trading fees and other transaction costs when buying and selling shares in the fund.
What are the different types of investment trusts available and how do they differ?
- Equity investment trusts: These trusts invest in a portfolio of stocks or shares. They may narrow in on a specific sector or have a more general focus.
- Property investment trusts: These trusts invest in commercial property, like office buildings, shopping centres, or warehouses. Often, they can be focused on a specific geographic region or sector.
- Alternative investment trusts: These trusts invest in assets that are not traditionally held in investment portfolios, such as infrastructure or private equity.
- Multi-asset investment trusts: These trusts invest in a diversified portfolio of assets, including equities, bonds, property, and alternative assets. They may have a specific investment strategy, such as generating income or achieving capital growth.
Investment trusts can differ in terms of their objectives, asset allocation and risk profile. It is therefore important for investors to understand the specific investment strategy of a trust before investing, as well as the associated risks involved.
Investment trusts offer individuals a unique way to invest in a diversified portfolio of assets, with the potential for long-term capital growth and income. They offer a range of benefits over buying individual stocks, including access to assets that may be difficult for individual investors to buy directly. Like any investment, investment trusts come with unique risks, and investors should carefully consider their goals, risk tolerance and the fees associated with investing in a trust before making a decision.
