What are investment trusts?
Helping you find opportunities where others don'tInvestment trusts offer a flexible and effective way to gain exposure to some of the world's most dynamic markets and regions. Here you can discover more about this approach to investing as well as the different ways you can invest with Schroders.
Explore and discover
The investment trust approach has a long and successful history stretching back over the past 150 years. Today, this sector is a popular destination for many types of investor. Explore how investment trusts could help you meet your financial objectives.
Investment opportunities
Schroders is a leading provider of investment trusts. We offer a range of innovative strategies investing in the UK, Asia and Real Estate sectors, which draw on our global investment resources and local expertise.
Talking points
Learn more about our approach to managing investment trusts as well as the latest ideas and opinions from our investment teams.
What are investment trusts?
Investment trusts are public companies that seek to make money for their shareholders by buying and selling shares in other companies or assets. They are run by professional fund managers, managing investment trusts and access the latest ideas and opinions from our investment teams. And to ensure that the managers always act in the best interests of investors, they are overseen by an independent board of directors.
By investing in an investment trust, you become a shareholder in the company. As a result, you have the right to vote on a range of issues including any changes to the investment policy and the re-election of directors.
By pooling your money with other shareholders, investment trusts enable you to gain exposure to a broad range of companies, regions and industries that you may not be able to access as an individual.
How do they work?
Unlike unit trusts and open-ended investment companies (OEICs), investment trusts are closed-ended. They issue a fixed number of shares, which can then be bought and sold on the London Stock Exchange.
The value of the assets held by an investment trust is known as the net asset value (NAV). Shares in an investment trust may trade for less than the NAV (at a discount) or for more than the NAV (at a premium).
The level of premium or discount changes on the basis of changing market sentiment towards a sector and individual investment trust. If an investment trust is trading at a discount to its NAV and the discount reduces or moves to a premium, investors will make an additional return over and above any return from the trust’s underlying assets. However, if the premium on an investment trust reduces or a discount widens, this will detract from returns.
Investment trusts can borrow more money to invest, which is also known as gearing. This approach can magnify gains for shareholders in a rising market, but also lead to greater losses when markets fall.
10 reason to choose investment trusts
1) Investors are shareholders
Once you’re invested, you become a shareholder in the company. This means you have a say in how the company is run, from its investment policy to the re-election of directors.
2) Small minimum investments
You can own a stake in large companies and properties for a relatively small amount of money. As investment trusts are collective investment funds, they pool cash from many investors to buy a diverse portfolio of assets.
3) Purchasing power
An investment trust pays a fraction of the dealing costs that a private investor would pay because it has the purchasing power to negotiate lower fees.
4) Risk management
Investment trusts enable you to spread your money between different companies, geographical regions, and industries. This diversification can help to protect the value of your investment when market conditions are more volatile.
5) Easy to track
Investment trusts are transparent. You can see where your money is invested through regular updates from fund managers and track performance daily on the stock market.
6) Investor protection
Despite their name, investment trusts aren’t trusts – they are limited liability companies with ordinary shares listed on the London Stock Exchange. They are required to produce regular financial reports and must act according to strict regulations.
7) Invest in the best
Investment trusts are closed-ended, which means that they do not need to sell assets to pay investors who wish to exit the fund. This structure means the fund managers can maintain a long-term investment strategy without any disruption.
8) Easy to buy and sell
Investment trusts trade on the stock exchange, so they are liquid like other publicly traded shares. As a result, investors can buy and sell their shares whenever they want.
9) Gearing advantage
Unlike collective investments, such as unit trusts, investment trusts can borrow money. This means the fund manager has easier access to capital to invest in high-conviction investment ideas.
10) Smoothing dividends
In contrast to open-ended funds, investment trusts can keep up to 15% of their dividend income in reserve each year rather than paying it all out immediately. They can then use this reserve to supplement income payments in future years.
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Investor information
What are the risks?
Past performance is not a guide to future performance and may not be repeated. The value of investments, and the income from them, can go down as well as up and investors might not get back the amount originally invested.
Some trusts invest solely in the companies of, or in property located in, one country or region. This can carry more risk than investments spread over a number of countries or regions.
Investors in the emerging markets and the Far East should be aware that this involves a high degree of risk and should be seen as long term in nature.
Exchange rates may cause the value of investments denominated in currencies other than sterling, and the income from them, to rise or fall.
The trusts may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.