What is investment trust?
Investment companies, also known as investment trusts, have a history of more than 150 years. Over that time they have constantly reinvented themselves to meet investors' needs. This page gives a snapshot of the industry now and shows how it has changed in recent years.
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What's in the name
Investment trusts are the most common type of investment company. Investment trusts are investment companies which are based in the UK and which meet certain conditions such as paying out a certain amount of the income they receive from their investments. Often, the term investment trust is used to refer to any kind of investment company.
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Shareholder democracy
When you buy a share in an investment company you become a shareholder. Shareholders in investment companies have the same rights as other shareholders in other companies.
Shareholders can:
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Vote on issues at the company’s annual general meeting (AGM).
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Table motions to be discussed.
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Call for extraordinary general meetings (EGMs).
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Vote in new directors if they are not happy with the current ones.
In other collective investments, you don’t have as much of a say in how the fund is run.
3
Investment companies vs open-ended funds
Investment companies will not always perform better than other funds. However, they do have some advantages that can help their performance over time.
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Closed-ended structure – this allows the manager to make longer-term decisions, without having to worry about needing to sell assets when investors sell their shares in the investment company.
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Listed on a stock exchange – this offers you the ability to buy and sell shares at any time in normal trading hours.
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Boards of directors – they provide an additional layer of oversight, protecting your interests.
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Gearing – the ability of investment companies to borrow money to invest means that they may perform better over the long term (but see risks below).
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Ability to invest in hard-to-sell assets – like private equity, infrastructure, and social and environmental impact investments.
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Consistent income – investment companies can smooth the income they pay out from year to year by reserving income in good years to pay out later. Watch the video below to find out more.
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Listed on a stock exchange
One of the unique features of investment companies is that they are public limited companies (plcs). Their shares are listed on a stock exchange just like those of any other public company and you invest in investment companies by buying and selling their shares. Investment companies can be listed on one of several stock exchanges but if you’re a UK investor, you’ll find most of them on the London Stock Exchange.
