There is quite a lot of basic Investment trust information which a private investor would be recommended to acquaint him or herself with before investing. This is because the share and corporate structure is different to other types of collective investment.
Firstly, as mentioned elsewhere in this section, they are described as 'closed-ended' funds because they have a fixed number of shares. In this regard, they are like any other London Stock Exchange quoted company because their share price will rise and fall in line with supply and demand in the market.
This type of structure offers benefits to their fund managers. They are generally able to take a more long-term approach to the equities that they buy and purchase. Should a large investor sell a holding, the fund manager will not need to reduce holdings in any of his investments as might be the case for a unit trust manager. In other words, it is the job of the fund manager to manage funds and not to fuss over the share price (at least not every day).
Many of the available investment trusts have very large organisations
investing in them. Some, Foreign and Colonial being the best example,
have lots of members of the general public as investors, but a number of
the more specialised companies have attracted more specialised
investors. This means that it is an investment environment where the
professionals tend to operate much more than the general public.
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Since they are quoted on the LSE like any other UK public limited company (plc), an investment trust manager can borrow money to invest elsewhere. This lending is known as 'gearing'. As might be imagined, it can have a profound impact on the performance of the fund - both good and bad!
Just like bicycle gears that can be used to make one rotation of the pedal more effective, borrowed money can add extra power to investment decisions when prices rise. However, when prices fall, this borrowing can be a weight around the neck of a fund and can significantly harm investment performance (the fund must pay interest on money used for an investment that is falling in value).
The individual roles required to operate and run an investment vehicle are quite specialised. Therefore, as might be expected, different operations are outsourced to different specialists. For example, each company will have a register of shareholders. This task will be carried out by a company which operates as a specialist in just this one area and may act on behalf of dozens of other similar companies.
Each investment trust is run by a board of directors and it will be these directors who are responsible for outsourcing specific tasks. They will appoint and monitor a fund manager, a marketing team, back office tasks (admin and accountancy), registration services and appoint auditors.
For more information, please visit:
What Is An Investment Trust?
What Are The Investment Trust Sectors?
How Does Investment Trust Net Asset Value Work?
How Do Investment Trust Share Buybacks Work?
What Is An Investment Trust Savings Scheme?
How Much Are Investment Trust Annual Charges?
What Are The Different Investment Trust Share Classes?