Guide to Investment Trusts

What are investment companies

  • An investment trust is a public listed company. It’s designed to generate profits for its shareholders by investing in the shares of other companies.
  • Shares in investment trusts are traded on the London Stock Exchange.
  • Investment trusts are closed-ended which means they have a fixed number of shares. The investment manager can invest and sell assets when they feel the time is right, not when investors join and leave a fund.
  • Gearing – investment trusts can borrow money to take advantage of investment opportunities. Gearing can increase the returns for shareholders, but if assets fall there is also an increase in potential losses. Not all investment companies use gearing and British Empire Trust plc (“British Empire”) only utilises gearing at very moderate levels.
  • Independent board. Every investment trust has an independent board of directors who are there to provide overall governance and who are responsible to set the dividends paid, ensure the investment manager is adhering to their remit and generally for the safeguarding of shareholders’ interests.
  • Investment management company. The independent board chooses a professional fund manager to run the investment trust’s portfolio. Asset Value Investors (“AVI”) have been the investment manager for British Empire since 1985, providing their skill and expertise to help maximise the investment trust’s investments and achieve long-term outperformance.
  • When an investor buys shares in an investment trust they become a shareholder. Shareholders have voting rights on issues such as appointment of directors and changes to the investment policy. Annual general meetings are held to which all shareholders are invited and where questions and issues are addressed.

Discounts and Premiums

There are two ways that the value of a share in an investment trust is often expressed:

  • The share price which is the price at which investors buy and sell shares on the stock exchange.
  • The net asset value per share (NAV). The NAV of a share is the value of all of the investment company’s assets less any liabilities, divided by the number of shares. Shares of an investment trust are traded on the London Stock Exchange and the share price may be higher (at a “premium”) or lower (at a “discount”) than the NAV

It’s the role of the asset management company, AVI ,appointed by British Empire to plan, manage the assets and oversee the investments on behalf of investment trust.

What’s the advantage of investment trusts?

  • It allows you to ‘pool’ your money with others’, giving you access to stock market returns on a much larger scale than you might be able to achieve on your own
  • It spreads your risk; investment trusts own a range of shares, so you’re not tied to the fortunes of just one or two companies
  • You get the benefit of having your investment overseen by professional asset managers with many years’ experience
  • You can enjoy stock market returns from a relatively small investment