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




Introduction


Investment trusts are one of the oldest forms of investment. The fir...
What is an investment trust?
In a nutshell, it’s a company which invests in the shares of other companies.



An investmen...
F&C investor helpline 0800 136 420




How can investment trusts help you?
Are you looking ahead to your retirement? Want ...
What makes an investment trust different?
Though similar to other types of collective investments, such as unit trusts and...
F&C investor helpline 0800 136 420




Low charges                                       Investment trusts therefore have ...
What are the main types of investment trust?
Each investment trust has an objective; some aim to maximise capital growth,
...
F&C investor helpline 0800 136 420




Investment trusts – more details.
Here are some more detailed nuts and bolts if you...
How can you invest in an investment trust?


Direct through a stockbroker                   Cost – some managers do not im...
F&C investor helpline 0800 136 420




Jargon buster.
Use this handy glossary to look up any technical jargon you are unfa...
Net asset value (NAV) per share                  Split capital trusts                            Total expense ratio (TER)...
F&C investor helpline 0800 136 420




Where can you find more information?
If you’d like more information on investment t...
2




Why choose F&C investment trusts?
F&C has been actively investing to increase the real value of investors’
wealth si...
Contact us.
      Call us 0800 136 420 (8am - 6pm, weekdays, calls may be recorded)
      Email us at info@fandc.com
     ...
F&C Management Limited
80 George Street, Edinburgh EH2 3BU
F&C Investments and the F&C Investments logo are trademarks of ...
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Your guide to investment trusts.

  1. 1. Your guide to investment trusts. We’ll show you an easier way to enjoy greater potential returns.
  2. 2. With their many attractions, it is perhaps not surprising that investment trusts are known as the City’s best-kept secret.
  3. 3. F&C investor helpline 0800 136 420 Introduction 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. 3
  4. 4. 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 in it. 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. Argentina. *‘Put not your trust in money’, John Newlands, 1997. “You can gain exposure, cost-effectively, to a diversified and professionally run portfolio of shares.” 4
  5. 5. 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. 5
  6. 6. 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. Professional investment managers 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. 6
  7. 7. 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. 7
  8. 8. 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. 8
  9. 9. 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 shares issued. 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 Capital structures 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. 9
  10. 10. 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: 10
  11. 11. F&C investor helpline 0800 136 420 Jargon buster. 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. ISA 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. 11
  12. 12. 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. 12
  13. 13. 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 Fund performance Market updates Literature library 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, portfolio service. 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. 13
  14. 14. 2 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 Email: info@fandc.com Web: www.fandc.co.uk Best Investment Trust Provider 2008 14
  15. 15. Contact us. Call us 0800 136 420 (8am - 6pm, weekdays, calls may be recorded) Email us at info@fandc.com Visit www.fandc.co.uk 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. If you have difficulty reading this pack and need a copy in large print, please contact us. If you are deaf or hard of hearing, remember you can use the Typetalk facility.
  16. 16. F&C Management Limited 80 George Street, Edinburgh EH2 3BU F&C Investments and the F&C Investments logo are trademarks of F&C Management Limited. © F&C Management Limited 2009. Issued and approved by F&C Management Limited which is a member of the F&C Asset Management Group and is authorised and regulated by the Financial Services Authority (FSA). Registered Office: Exchange House, Primrose Street, London EC2A 2NY. Registered in England & Wales No 517895. F&C1095 01/09

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