Investment Trusts

Investment Trusts are companies that invest in the of other companies.

Being Companies themselves, Investment Trusts (ITs) have a fixed number of shares traded on stock exchanges like other public companies, which investors purchase. Because there are a fixed number of shares, the price is not directly linked to the underlying value of the investments; it is driven by market forces of supply and demand.

If more investors want to invest in the Investment Trust shares than want to withdraw, the price goes up regardless of the underlying investment value. This is a key difference to Unit Trusts (where the unit price is directly linked to the underlying investment value). Also it is only possible to sell an Investment Trust if someone else wants to buy it, whereas a Unit Trust must repurchase units from an investor that wishes to sell.

Another key difference between an Investment Trust and a Unit Trust is that an Investment Trust manager is legally allowed to borrow capital to invest. This may increase investment gains but also increases investor risk.

Most investors feel more comfortable with the simpler approach of Unit Trusts, although Investment Trusts have a longer history.

The oldest Investment Trust, launched in 1868 by F&C is still open to investment, has about £2.6bn funds under management, with 16.26% p.a. average return over 5 years to Dec 2007. _{^{(source F&C)}}