Investment Trusts
Deciding to Invest
Never buy an investment trust purely on the basis of past performance. However, that doesn't mean you should ignore it either. Some star performer fund managers have a substantial following among investors. What happened in the past is no guarantee of success in the future but if a trust has performed consistently well, the chances are that it has a skilled manager or team whose investment strategy is working well.
Investment trust shares tend to trade at a discount. This means the share price of the investment trust company is lower than the value of the underlying assets held by the trust. The latter is expressed as the net asset value (NAV) per share. There can be a number of reasons why this is so.
The first is a simple structural point - in theory you could buy the same portfolio of shares yourself directly in the market without having to pay the trusts fees / management charges, so the discount first of all reflects this extra cost that you pay.
The other major factor affecting the size of the discount is the popularity or otherwise of the investment trust in question. Investment trust share prices are set by supply and demand and the relationship to the value of the underlying assets can be elastic. It is worth remembering that a discount can be useful to you. A 10% discount would allow you to purchase 100p worth of assets for 90p; meaning more assets working for you to provide dividend income and potential capital growth.
Investing
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