Unit Trusts

Unit trusts are open-ended investments; the underlying value of the assets is effectively divided by the total number of units issued to arrive at the unit price. Each fund has a specified investment objective to determine the management aims and limitations.

• Fund manager runs the trust for profit.
• Trustees ensure the fund manager keeps to the fund's
  investment objective
• Unitholders have the rights to the trust assets.

When money is invested or withdrawn units are created or cancelled at the prevailing unit buying price.The manager covers his costs in investing funds from the difference between the purchase (offer) price and the sale (bid) value of units. This is known as the bid–offer spread. Typically the bid–offer spread is about 5%.

To cover the running cost of the investment portfolio there is an annual management charge (AMC). Typically this is 1 to 2%.

The most successful Unit Trust in the UK to date is Fidelity’s Special Situations Trust, managed by Anthony Bolton since inception on 17.12.1979. Over 28 years this fund returned 16,047% (i.e. it turned £1,000 initially invested into about £160,470) by comparison the FTSE Allshare index grew by 4,225% over the same period. Over 10 years to February 2008, the fund averaged 13.39% p.a., consistently in the top quartile in its peer group.

Whilst this is a massive success story, Anthony Bolton retired from managing the fund in January 2008, which reinforces the need for regular review!