What is an Investment Trust?
An investment trust is a form of collective investment, which has been a part of the investment landscape in the UK for over 140 years. Most investment trusts are listed on the London Stock Exchange and because they are traded on the stock exchange they are subject to the same level of scrutiny and corporate governance that governs all UK Public Limited Companies. This includes oversight by a Board of Directors which has the responsibility to act in shareholders’ interests at all times; a characteristic that unit trusts do not have. Investment trusts have a set number of shares (and are sometimes referred to as closed-ended funds). To invest in a trust, you buy shares from someone willing to sell them, unlike unit trusts where new units are created when someone wants to invest. This means that in times of market stress, the fund manager is not forced to sell assets to meet redemptions and investment trusts can take a longer term view of which companies they own without worrying about investors seeking access to their money. Unlike unit trusts, investment trusts do not have to pay out all of their income to shareholders each year and can ‘smooth’ payments to investors by retaining up to 15% of its income, saving some in years it earns more to subsidise the years it earns less. While growth in income cannot be guaranteed, Witan Investment Trust has grown the dividend it pays to investors each year for 41 years but please be aware that past performance is not a guide to future performance and see here for a history of Witan’s performance. Lastly, investment trusts also have the ability to make use of gearing for investment purposes, i.e. they are able to borrow to buy more assets; as such, when markets go up it can magnify returns but when markets go down it can increase the downside and you could get back less than you invested or nothing at all. Witan has the ability to increase or decrease its level of gearing to try to suit market conditions.