Your guide to investment trusts.
We’ll show you an easier way to enjoy greater potential returns.
With their many
attractions, it is
perhaps not surprising
that investment trusts
are known as the
City’s best-kept secret.
F&C investor helpline 0800 136 420
Investment trusts are one of the oldest forms of investment. The first,
Foreign & Colonial Investment Trust, was launched in 1868, but their
aim is still as relevant today – to offer private investors a means of
investing in the stock market, whilst reducing the risk by spreading
their investment over a wide range of companies.
You may not be familiar with investment trusts yet, but you will find
they offer some unique advantages that make them highly versatile
for most types of investment purpose.
In this guide we aim to explain in simple terms what investment trusts
are, their advantages over similar types of investments and how you
can use them in planning your financial affairs.
What is an investment trust?
In a nutshell, it’s a company which invests in the shares of other companies.
An investment trust is a public limited As well as investing in companies both in
company, like Marks & Spencer for example, the UK and abroad, investment trusts can History of investment trusts
and its shares are quoted on the stock invest in property, bonds and cash.
Investment trusts have a long history,
market. When you invest in an investment
Investment trusts are different from bank being invented as a way for industrialists
trust, you therefore become a shareholder
and building society accounts in that they to raise capital in the boom years of the
can go down in value as well as up, which is 19th century.
The beauty of an investment trust is that it part of the nature of a stock market
They were used “by the jute weavers of
pools your money with that of other investment. This means you may not get
Dundee, the lawyers and architects of
investors and employs professional fund back the amount you invest. If you are not
Edinburgh, and the financiers and
managers to invest this money in a wide willing to accept any risk in exchange for a
railway barons of London to fund much
range of different companies. greater potential return, you might be better
of the infrastructure of the United
to keep your savings in a bank or building
This means that even if you only have a States, Canada, Argentina and
society where your capital is safe.
small amount to invest, you can gain elsewhere.”*
exposure, cost-effectively, to a diversified
Projects funded ranged from the
and professionally run portfolio of shares.
building of the American railroads,
Your risk is also spread much more than if
rubber plantations in Malaysia, cattle
you were reliant on the success of just one
ranching across Canada and the United
company. If the companies that the fund
States and the laying of undersea
managers invest in do well, the value of the
telegraph cables, to gold and silver
investment trust will grow, and so should the
mining and land development in
value of the shares you own in it.
*‘Put not your trust in money’,
John Newlands, 1997.
“You can gain exposure, cost-effectively,
to a diversified and professionally run
portfolio of shares.”
F&C investor helpline 0800 136 420
How can investment trusts help you?
Are you looking ahead to your retirement? Want to build up a fund for a holiday of a lifetime,
or to help pay off your mortgage early? Or want to invest for your children or grandchildren?
Whatever your plans for the future, Investing for income – income-paying Investing for children – investing now
investment trusts can provide a low cost trusts can be a sensible choice if you are for a child could give them a better start
and flexible way to invest. approaching retirement or already retired in life in the years ahead. It’s tempting
and would like to supplement your and easy to put the money in a bank or
First time investors – a global trust can pension. Over time, the income from building society account. But with a time
be an ideal first investment, as long as these trusts has the potential to outpace span of up to 18 years, you might decide
you can commit the money for at least inflation. it’s worth taking more risk as the rewards
five years. It provides an instant spread of could be much greater. You can invest in
risk across some of the major world Saving for retirement – you can invest in investment trusts through the
stock markets. an investment trust through a personal Government’s Child Trust Fund.
pension or self-invested personal pension
Going for growth – if you are a younger (SIPP). The type of trust you choose will
investor, you could look at a specialist depend on how close you are to
trust that focuses on growth, such as retirement and how much risk you are
one investing in emerging markets. With willing to accept.
longer-term investment horizons, you can
afford to ride out some shorter term ups
and downs from a more risky, volatile
fund that has the potential for higher
rewards over the longer term.
What makes an investment trust different?
Though similar to other types of collective investments, such as unit trusts and OEICs,
investment trusts offer some unique advantages.
Rewarding performance figures Past performance is not a guide to future Independent directors
One of the most attractive features of performance. Stock market and currency Every investment trust has its own
investment trusts is their impressive movements may cause the value of an independent board of directors which sets
performance. For example, £5,000 invested investment and the income from it to fall as its investment objective. The board meets
into the average investment trust 10 years well as rise and you may not get back the several times a year and has a legal duty to
ago would have grown to £9,114, amount you invested, whereas savings in a act in the interests of the trust’s
compared to £7,096 in the average Open- bank or building society are readily shareholders. The board makes strategic
Ended Investment Company (OEIC) and just accessible and capital and interest, once decisions such as the level of dividend to
£6,489 in an average savings account. earned, is guaranteed. pay shareholders or choosing the
Source: Lipper Hindsight. investment management company (the
manager). Shareholders can attend and vote
at Annual General Meetings (AGMs), at
which the reappointment of individual
directors is typically voted on.
The board appoints the manager to make
decisions regarding which shares to buy and
sell. In return, the manager receives a fee.
The board monitors the performance of the
trust and if they believe performance is not
up to scratch, it can dismiss the manager
and replace it with a new one.
Lump sum investment of £5,000, offer to offer, net income reinvested to 31.12.08. Source: Lipper Hindsight. Stock market
and currency movements may cause the value of shares and the income from them to fall as well as rise and investors
may not realise the original amount invested, whereas savings in a bank or building society are readily accessible and
capital and interest once earned, is guaranteed. Average savings account for a £5,000 investment.
F&C investor helpline 0800 136 420
Low charges Investment trusts therefore have the
Investment trusts incur running costs, such advantage that their managers don’t need to
as the fee they pay the manager, dealing sell investments to meet withdrawals, which
charges when investments are bought or means they can invest for the long term with
sold, directors’ fees and administration costs. greater confidence.
These costs are paid directly by the trust, not
from investors’ holdings, though they reduce
Ability to borrow
Investment trusts can borrow money or
the return you earn on your investment.
‘gear’ their portfolios, to make additional
Boards review costs to ensure that they are investments on top of shareholders’ funds.
not excessive and that the interests of This enhances performance if returns
shareholders are looked after. Running costs exceed the cost of borrowing, and is one
vary but are typically lower than those of unit reason investment trusts have historically
trusts or OEICs, which can have an annual outperformed other collective investments
fee of 0.5% to 1.5%, plus an initial charge of over the long term. However, in a falling
up to 5%. market, gearing will magnify the negative
impact on performance.
Ability to plan for the long term
When an investment trust is launched, shares
are issued to investors to raise funds for A summary of investment trust features
investment. As the number of shares is fixed,
the managers know how much they will have Diversification of risk
to invest. Investment trusts are therefore Access to many companies through one investment
known as ‘closed-ended’. Unit trusts and Independent board
OEICs, in contrast, change in size as they
create or cancel units/shares, depending on Managed by professional experts
whether investors are buying or selling. Value for money
Ability to borrow to increase returns
Wide choice of investments around the world
Put together, you have a simple and cost-effective way to invest
in the stock markets of the world.
What are the main types of investment trust?
Each investment trust has an objective; some aim to maximise capital growth,
others aim for income. Some may strike a balance between the two.
All will clearly specify their investment objective to potential shareholders.
Global generalists – larger trusts Country and sector specialists – Split capitals – these offer more than
investing in a wide range of companies investing in specific geographical areas one type of share, to suit the differing
on a global basis. Often viewed as a first such as the Far East, Europe or Latin needs of investors.
step into investment trusts, they provide America. These are likely to be more
a cost-effective ready-made portfolio. volatile than global trusts, as they don’t
invest as widely, but could provide
UK – focusing on UK investments only, greater returns. Other trusts may invest in
they can aim for income, capital growth, sectors such as smaller companies,
or a combination of both. property and financials.
F&C investor helpline 0800 136 420
Investment trusts – more details.
Here are some more detailed nuts and bolts if you’d like to know more.
There are two ways to measure the Measuring performance Pricing
performance of an investment trust; its share The share price might be either below the If you buy shares in an investment trust, the
price and its net asset value (NAV). NAV, in which case it’s described as trading price you pay is the share price quoted on
at a ‘discount’, or above the NAV, in which the stock exchange that day. However, the
Share price – is the price at which you
case it’s trading at a ‘premium’. As an price quoted in newspapers or websites on
will be able to buy or sell your shares and
example, if the NAV is 100p and the share the day you buy will not necessarily be the
is determined by supply and demand.
price is 90p, the trust is trading at a 10% one you paid. Newspapers quote the mid-
Net asset value (NAV) per share – this discount. Discounts and premiums vary all market price, which is the mid-point
reflects the value of the trust’s portfolio. It the time, depending on demand for the between the bid price and offer price at the
is the value of the trust’s assets, minus trust’s shares. If you buy shares at a close of business the previous day.
any borrowings, divided by the number of discount, this can be seen as good value for
money, as you are paying less for the shares You can find the share price, NAV and
than the value of the underlying assets. If the discount/premiums of investment trusts in
trust performs well, demand for its shares the Financial Times or at www.theaic.co.uk.
should rise, which means that the discount
may narrow and your investment should rise
Most investment trusts only issue one type
faster than any increase in assets. For
of share, usually called an ordinary share.
example, if you buy at a 10% discount and
Some have a ‘split capital’ structure and
sell at no discount, you gain a 10% boost to
issue a number of share classes, each with
your investment performance on top of the
a different entitlement to the trust’s capital
underlying return from the trust’s portfolio.
and income. Each share class is designed to
However, there is always a risk that the appeal to different investors who have
discount can widen further. Plus, many differing needs.
factors can influence the discount or
premium, and a large discount does not
necessarily indicate a bargain. Other reasons
can include poor performance, market
sentiment and regard for the fund manager.
How can you invest in an investment trust?
Direct through a stockbroker Cost – some managers do not impose Automatically reinvest dividends – if
You can buy investment trust shares, as with any charges on top of the trust’s you do not need an income at the
all shares, direct from a stock broker. They underlying management fees and moment, your dividends can be
will generally charge you a fixed amount government stamp duty. Others may automatically re-invested for you to buy
every time you buy or sell. charge a small annual or transaction fee. further shares.
Either way, these can work out lower
Through a management than the charges you typically need to Ability to switch – if the company
company savings scheme pay a stock broker. manages more than one investment
You can also buy investment trust shares trust, you can usually switch your
through the company that manages their Convenience of a direct debit – you investment between the trusts in their
assets. Many investment trust boards ask can set up a regular monthly direct debit range at any time.
their managers to operate savings schemes to build your savings up over time.
on their behalf, to make it easier for
investors to buy shares.
Typically you can choose from a
straightforward savings scheme, an
Individual Savings Account (ISA) and
schemes specifically targeted for parents
and grandparents to invest for children.
Minimum investments are usually low and
can start from as little as £25 a month.
These schemes have a number of
advantages over buying shares direct
through stock brokers:
F&C investor helpline 0800 136 420
Use this handy glossary to look up any technical jargon you are unfamiliar with.
Assets has the freedom to focus on long-term IFA
The investments held by an investment investment decisions, as the assets do not This term stands for Independent Financial
trust. need to be sold to manage inflows or Adviser and is a person who can provide
outflows from the portfolio. financial advice on the most suitable
Bid price investment for you.
This is the price that investment trust Dealing
shares are sold at and is determined by Buying and selling of shares. Investment trust
supply and demand. A public limited company that is listed on
Discount the London Stock Exchange. It exists to
Bid/offer spread When the share price is lower than the net invest in the shares of other companies with
This is the term used to describe the asset value (NAV), it is referred to as trading the aim of producing a return for its
difference between the offer price and the at a discount. The discount is expressed as shareholders.
bid price. a percentage of the net asset value.
Buy-backs Dividend An Individual Savings Account (ISA) offers
Investment trusts have the ability to Income paid to shareholders by the tax advantages for UK based investors.
buyback their shares to improve shareholder company they invest in.
value – usually to narrow the discount and Management fee
enhance net asset value. Shareholders will Dividend yield The charge levied by an investment
be asked to vote each year so that the trust The annual dividend income per share company to manage the trust’s assets. It
can exercise this right as and when it is received from a company divided by its can be either fixed or percentage based and
deemed suitable. current share price. Put simply – how much can include a performance related fee.
income you are getting out of the company
Capital structure for the capital you have got locked up in it. Market capitalisation
The different amounts and types of stocks An investment trust’s stock market value,
and shares which make up a trust’s capital – Gearing calculated by multiplying its share price by
the amount of ordinary and preference Gearing is an investment term for borrowing. the number of shares in issue.
shares, for example, which are in issue. Borrowing is used to make further
investments. If assets rise in value, gearing Net asset value (NAV)
Closed-ended magnifies the return to shareholders. Net asset value or NAV is the value of the
A capital structure with a fixed number of Correspondingly, if assets fall, gearing total assets of the trust minus any liabilities
shares. This means that the fund manager magnifies the fall. or borrowings.
Net asset value (NAV) per share Split capital trusts Total expense ratio (TER)
Net asset value divided by the number of Split capital trusts have one investment The total costs of running an investment
shares in issue. portfolio but issue various classes of shares trust expressed as a percentage of its
with different entitlements to capital and assets.
Offer price income to meet different investment
This is the price that investment trust objectives and have finite lives. These can Warrants
shares are bought at and is determined by comprise a combination of zero-dividend These are a type of security that gives the
supply and demand. preference shares, income shares, capital holder the right to buy shares at a fixed time
shares and ordinary shares. in the future for a price that is set when the
Ordinary shares warrant is issued. If the shares are worth
The most common type of share issued by Stamp duty more than the amount at which the holder is
companies. A mandatory Government tax imposed on entitled to buy them, they make a gain. The
the buying of shares and property. Currently, price of warrants can be very volatile and
Premium buying shares incurs stamp duty at the rate you shouldn’t deal in them unless you fully
When the share price is higher than the net of 0.5%. Stamp duty only applies to understand them and the extent of the risk
asset value (NAV) it is referred to as trading purchases, not to sales. you take on.
at a premium. The premium is expressed as
a percentage of the NAV. Zero dividend preference shares
A share with no right to receive a dividend.
It is entitled instead to a fixed sum on
repayment. These are shares that aim to
deliver pre-determined growth.
F&C investor helpline 0800 136 420
Where can you find more information?
If you’d like more information on investment trusts, Our website has lots to offer both the first time,
and the experienced investor:
why not take a look at our website:
Introduction to investing
www.fandc.co.uk Fund prices
Report & accounts
We offer some useful tools:
Fund selector tool – by answering a few simple
questions, it creates a list of options that can best
help you achieve your investment aims.
Portfolio tracker tool – allows you to retrieve daily
valuations on all of your investments, including those
not held with F&C.
Other sources of information:
www.theaic.co.uk The Association of Investment
Companies (AIC) is the trade organisation for the
investment company industry, which includes
investment trusts. Their website offers detailed
performance statistics, fact sheets on various
topics, news and fund manager interviews.
www.citywire.co.uk Fund manager ratings,
F&C Investment Club rankings and performance data, news, market data,
Imagine how easy it would be to keep up with the financial markets if you fact sheets.
received email updates giving you the latest news, insight and expert
opinions from leading fund managers. With the F&C Investment Club www.hemscott.com Investment trust centre,
– you don’t have to imagine. annual reports and brochures, markets, news,
To join just log onto www.trustnet.co.uk/it Daily investment trust
www.fandc.co.uk/club prices, performance information, portfolio tool, fund
and follow the on-screen prompts. fact sheets, news feed.
Why choose F&C investment trusts?
F&C has been actively investing to increase the real value of investors’
wealth since the launch of Foreign & Colonial Investment Trust in 1868. 2008
Gold Standard Award for fund
management 2006, 2007 & 2008
Well over a hundred years later, we are
proud to be one of the largest investment F&C Private Investor Plan – a
trust managers in the UK. We have also flexible, cost-effective way to invest in
continued to build on our innovative our investment trusts, with a lump
pedigree; we launched the first investment sum or monthly savings. Highly Commended
Trust Award 2008
trust savings scheme and remain one of the
F&C Investment Trust ISA – invest
few investment trust managers to offer a
up to £7,200 tax efficiently each year
Child Trust Fund.
with a lump sum or monthly savings,
We offer a number of products which enable or transfer an existing ISA to us.
you to invest in investment trusts. We
F&C Child Trust Fund – a tax-
cannot advise you about the suitability of
efficient account for investing the
investing with us (if you want advice you Best Investment Trust
£250 voucher issued by the Group
should speak to an independent financial
Government to all children born since
adviser), but we do have a range of
1 September 2002.
brochures that explain our products, and our
Investor Services team can answer any F&C Children’s Investment Plan –
questions you may have. an ideal savings plan if you have
Best Children’s Investment
children not eligible for the CTF, or if Provider 2007 & 2008
you prefer to top up into a plan where
you retain control of the money.
F&C Pension Savings Plan – a
simple, low cost way to save for your
Rated 3rd overall
retirement using investment trusts. in the UK, 2008
Please contact us for further information
on any of these products.
Phone: 0800 136 420
Best Investment Trust
Call us 0800 136 420 (8am - 6pm, weekdays, calls may be recorded)
Email us at firstname.lastname@example.org
Please note that we cannot give you any advice on the suitability of investing in our plans.
Investors requiring advice on their individual circumstances or if unsure about a financial
decision should consult a financial adviser.
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