Investment trusts

Background
An Investment trust is a form of investment fund found mostly in the United Kingdom and Japan. Investment trusts are closed-end funds.

Investment trusts are publicly listed companies that invest in financial assets or the shares of other companies on behalf of their investors.

The purpose of this note is to act as an introduction for non-US investors who may wish to consider the use of investment trusts as part of their investment plan. Investment trusts have been part of the UK investment markets for many decades and are a trusted form of vehicle for many investors. In addition investment trusts can be helpful in certain circumstances from a taxation point of view.

This article will not delve into any detail in regards to investment trusts as the references listed below provide a more than adequate background to the subject.

The use of investment trusts for a simple boglehead approach is counter intuitive due to the management style and the ongoing costs, however this should not exclude its consideration for reasons of diversification, simplicity and potential tax opimisation.

Any investment into this type of fund should be carefully considered, appropriate research should be carried out and advice should be sought from a qualified financial adviser prior to making any investments.

Key points on investment trusts
When you invest in an investment trust you are buying shares in the investment trust, the value of which fluctuates based on:


 * The underlying value of the assets they own


 * The supply and demand for their shares

A few key observations regarding investment trusts:


 * ITs are closed end funds and as such have a limited number of shares, additional shares are not normally issued and shares are not subject to buyback
 * The shares are traded on the stock market throughout the open
 * Share trades for investment trusts are subject to normal commissions
 * The share price at any time may not equal the NAV, premia and discounts to the NAV are based upon market supply and demand
 * ITs can use leverage and this will increase the risk attached to the fund.
 * ITs are actively managed funds
 * The management fees for ITs are generally higher than a passively managed index fund.

Foreign and Colonial
Foreign and Colonial is probably the most famous name in investment trusts and it is highlighted here for that reason and not due to any perceived outperformance. The original company was founded in 1868 as the Foreign and Colonial Government Trust and was the first collective investment trust in the world. It originally invested in government bonds only.

The company has approximately £4.1bn under management, with stakes in about 500 companies around the world and is listed on the LSE and the New Zealand stock exchange.

The Foreign and Colonial name was rebranded recently to F&C (FCIT) and has now been rebranded again to a range of BMO fund names with new tickers associated.

Following the take over by the Canadian asset manager BMO the F&C funds have become part of their stable of funds and F&C is now called: BMO Capital and Income Investment Trust PLC with the new ticker: BCI.

Investment trust providers - UK
The Association of Investment Companies exists to look after the interests of investment trusts and provides a search facility for registered investment trusts.

The top ten are listed below in order of total asset value (July 2019):

The top ten largest global investment trust funds excluding REITs and hedge funds etc are as follows (July 2019):

Selection of investment trusts
Investment trusts are actively managed by a fund manager, who looks to various sectors and asset types to achieve the funds goals. This allows the investor to invest in assets that may not be normally accessible. The range of funds also allows the investor to choose particular sectors, investment styles or industries.

The manager can choose to invest in assets including:


 * Company shares
 * Property
 * Other funds
 * Debt
 * Cash

There are over 400 investment companies, many of which have existed for more than 50 years. They include:


 * Investment trusts
 * Offshore investment companies
 * Venture Capital Trusts (VCTs)
 * Split capital investment companies

The subject matter under discussion here is investments trusts.

The Association of Investment Companies website provides information on the registered companies in regards to:


 * Discounts
 * Dividend payments
 * Share price and total returns
 * NAV total returns
 * Charges
 * Gearing
 * Trading volumes

The largest sectors by assets under management (December 2017) were:


 * Global (£27.1 billion)
 * Private Equity (£14.7 billion)
 * UK Equity Income (£12.0 billion)
 * Infrastructure (£10.0 billion)
 * Specialist Debt (£7.8 billion)