Rather amazingly, there are considered to be 38 different investment trust sectors. These classifications are made by The Association of Investment Companies (AIC). Until a name change in 2006 this was The Association of Investment Trust Companies (AITC).
These sectors are split into different geographic regions of the world as well as different economic and business focuses. Needless to say, this offers a massive range of diversity when it comes to the potential for both risk and reward.
One of the few things that these sectors all have in common is that each company is listed on the London Stock Exchange.
There are a number of 'Global' Investment trust sectors - for example Global Growth or Global High Income.
There are a number of 'UK' focused sectors - for example UK Smaller Companies and UK Growth.
There are a number of regional specialist sectors - for example North America, Far East or European.
There are also a number of industry specific Investment trust sectors - these include areas such as financials, utilities, property and in a nod of the cap to days gone by and the beginnings of these funds there is even a Tea Plantations sector!
However, the modern world of finance and financial innovation has also penetrated the world of Investment trust sectors as there are now hedge fund, venture capital and zero preference share trusts too.
The classification of a company into a sector is generally made with regards to how money is allocated. A company will usually fall into a sector if at least eighty percent of assets are allocated in that area.
As one might imagine, this focus combined with the usual discount to NAV that most trusts perpetually suffer from can offer some interesting value opportunities.
For example - to be considered a Japanese Smaller Companies Investment Trust, a company would need to invest at least eighty percent of assets under management into shares of smaller sized Japanese firms. These would normally be firms which have a stock exchange listing.
Whilst this might sound onerous for a fund manager, it is worth remembering that most funds do actually want to have a classification within the AIC system as this will make comparisons with other companies easier and make the job of marketing and bringing in investor's money more possible. It is after all, a competitive world - especially in retail investment.
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What Are The Different Investment Trust Share Classes?