Investment trusts

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2. What does an IT do?

An Investment Trust (IT) invests in other companies. Its board of directors appoints a professional team of managers to invest shareholders' funds and sometimes outside borrowings in other companies and to manage the portfolio to best advantage.

The fund managers' brief is to choose a portfolio of investments which fulfil the stated aim of the IT. They may invest in UK or foreign companies, in small or large companies, in quoted or unquoted companies, and the size of the individual investments may range from £500,000 to over £1bn.

The IT collects the dividends paid out by the companies in its portfolio. The total of these dividends, after deduction of management expenses (usually between 0.5% and 1% of the fund), is the 'profit' of the IT, and this is paid out to the IT's own shareholders as a dividend.

The size of the dividends and the degree of capital growth (increase in the IT's share price) which you can expect depends on two things:

1. the stated aim of a fund, in particular whether it is an 'Income' fund or a 'Capital Growth' fund.
2. the fund manager's skill in choosing shares which perform well.

1. What are investment trusts? 2. What does an IT do? 3. Difference from unit trusts 4. IT specialisation 5. Tax advantages 6. Discounts: the share price of ITs 7. Gearing 8. Split capital trusts 9. Warrants 10. Ways of investing in an IT 11. Factors to consider when choosing an IT 12. Where to find information about ITs 13. Conclusion