How to read the financial pages

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5. Investment trust prices

An investment trust is a company quoted on the London Stock Exchange whose sole purpose is to invest shareholders' money in the shares of other companies. Like unit trusts, ITs provide a way for investors to diversify risk and have the benefit of professional fund management.

Unlike unit trusts, investment trusts are companies themselves, with shares whose prices rise and fall according to market forces. The prices of IT shares are reported like shares of other companies in the daily listings of all newspapers. They appear as their own 'sector' - Investment Trusts - with columns for the last quoted price, change from the previous day's price, 52-week highs and lows, and gross yield.

But, in addition, the newspapers quote two items of crucial importance to investors:

1. Net Asset value per share
   This is the total of all the trust's assets, divided by the number of shares in issue. In theory, it is the payout that shareholders would get if the trust was liquidated and all its assets sold.
2. Discount/Premium
   Expressed as a percentage, this relates the current price of the trust's shares to the NAV. If the figure quoted is positive, it means that the trust is trading at a discount to NAV, which is very common but not desirable. It means that even though the trust has assets worth £100m, the market only values the company at, say, £90m (i.e. a 10% discount).

   Discounts have long been a problem for investment trusts. They have narrowed in recent years, but are still wider than the industry would like.

When reading about IT performance in the weekend newspapers and investment magazines it's important to distinguish between the different types. These are:

• General trusts which invest in a diversified portfolio of international shares
• Trusts investing in specific geographical areas (e.g. emerging markets e.g. North America)
• Trusts investing in specific market sectors (e.g. small caps e.g. high-tech)
• Trusts aiming to produce high income
• Trusts aiming to produce strong capital growth

The 'Databank' page of the FT on Saturday provides excellent tables showing the average performance of each type of trust, and the performances of individual trusts. Click here for an example.

As far as launches of new investment trusts are concerned, the Saturday FT is, again, the best source. It tells you which funds are being launched, what their target size and yield is, the charges, the issue price of the shares, and offer periods.

1. What are the financial pages? 2. What to look for 3. Business news 4. Share prices in newspapers 5. Investment trust prices 6. Share prices on the internet and television 7. Commentary on share price movements 8. Anticipating company results 9. Finding company results 10. Interpreting company results 11. Takeovers and mergers 12. Indices 13. Sectors 14. Directors dealings 15. Unit trust information 16. Government bonds 17. Corporate bonds 18. Economic data - who needs it? 19. Key economic indicators 20. Conclusion

• How to Read the Financial Pages
• Eat The Rich