If you are looking for an alternative to traditional unit trust or ‘open ended investment company’ (OEIC) investment, then investment trusts may provide the answer.
With around 400 investment trusts in the UK with total assets of around £50 billion they can help you balance your investment portfolio.<,/p>
But what is an investment trust? And what should you look for when choosing one?
What is an investment trust?
Investment trusts work in a different way to OEICs and unit trusts.
While there are some similarities – they are often categorised into country and regional funds so you get investment trusts UK and investment trusts Europe – they differ in some important ways.
Investment trusts work in a similar way to a unit trust or open ended investment company. They issue shares to raise money from shareholders and then invest that money.
However, rather than investing this money in machinery, stock or other physical assets, independent investment trust companies invest their money in other companies.
Like ordinary companies, investment trusts have a set number of shares. So, if you want to buy shares in an investment trust, you normally have to buy them from someone who already holds some.
This is different to unit trusts and OEICs who just create additional units when you invest.
What should you look for when choosing an investment trust?
There are several factors that you should consider when looking for the best investment trust:
- The level of risk to your money
- Past performance and the investment strategy used by the investment trust managers
- Pricing, fees and charges
As with other investments, deciding on your preferred level of risk is crucial.
Different investment trusts invest in different markets and countries and so it is important to find the right trust for you.
Secondly, it is often worth considering investment trust performance. While past performance cannot predict future performance it is worth undertaking some research to find out who the best investment trust managers are and what returns a trust has provided over a number of years.
Finally, when choosing an investment trust you should consider investment trust prices.
You can expect to pay a charge when you buy and sell shares in an investment trust although these vary from company to company. You may also be able to save money by using a discount broker.
When considering investment trust prices you are also guaranteed a small loss in the difference between the bid and offer prices of the shares.
You should also compare the annual management fees and other administrative costs charged by the best independent investment trust companies.
