Fundamentals: Five reasons why investment trusts are different from funds

TL;DR

Investment trusts offer structural advantages over funds, including stock market listing, fixed number of shares, and ability to hold back dividends.

Transcript

a professional investor called a full manager will either manage a fund or an investment trust both pool the money of thousands of investors in a selection of investments known as a portfolio the main difference between the two is that investment trusts are companies in their own right and are listed on the london stock exchange that means that tho... Read More

Key Insights

• 👂 Investment trusts are listed companies with fixed shares, trading at premiums or discounts.
• 🥹 They can hold back up to 15% of dividends each year in a revenue reserve.
• ⚙️ Investment trusts can gear or borrow to invest, improving performance but increasing risk.
• 🏂 Independent boards oversee investment trusts, ensuring management in shareholders' interests.
• ❓ Trusts maintained or increased dividends during the Covid-19 pandemic, unlike many funds.
• 🉐 Differences in structure and management give investment trusts advantages over funds.
• 🪐 Trusts offer investors the opportunity to buy shares at a discount to net asset value.

Questions & Answers

Q: What are the main differences between investment trusts and funds?

Investment trusts are listed companies with fixed shares and can trade at premiums or discounts, while funds are influenced by investors' buying or selling, with no fixed number of shares.

Q: How do investment trusts manage dividends differently from funds?

Investment trusts can hold back up to 15% of dividends each year in a revenue reserve, allowing them to potentially maintain or increase dividends even if the companies they invested in pay lower dividends.

Q: What is the role of an independent board of directors in investment trusts?

An independent board of directors oversees investment trusts, ensuring they are managed in shareholders' interests, and can replace the fund manager if needed.

Q: How does gearing or borrowing affect investment trusts' performance?

Investment trusts can gear or borrow to invest, potentially improving their performance in rising markets, but also increasing risk and causing greater losses in falling markets.

Summary & Key Takeaways

• Investment trusts and funds pool investors' money into portfolios but differ in structure and management.

• Investment trusts are listed companies with fixed shares, traded at premiums or discounts.

• Trusts can hold back dividends, gear or borrow to invest, and are overseen by independent boards.