investment trust, advice

J

joe sod

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From reading some very good posts on this site I am now interested in investing in investment trusts. They seem to be very advantageous from a tax point of view as the consensus is that they are treated like shares and not funds. However there is not that much information about them other than that. I know that they are basically a UK animal and surprisingly not really traded in the US. Can anyone give some information on them or even mention a few reputable names ( i know you cannot give share tips on this site). For instance some I have looked at have had outstanding performance but then why are they not more popular and why do I not hear more about them?, and why are they not really traded in the US which is afterall the biggest market in the world.
 
The association of investment trusts in the UK have a very good site where you will find listings, literature and more. Not true that they are a UK animal (though very popular there), the USA has multiple investment trusts (called closed end funds) and there are others in Europe (diversified holding companies and the like). You are right in that they are not organised as well outside the UK however (exception of possibly the USA).

As to why not as popular, a large amount of it has to do with commissions (in that they don't offer them to financial advisers => they don't recommend them). That being said they are actually quite popular.
 
You need to look carefully at the price at which these vehicles trade against their underlying holdings and their performance against a reasonable benchmark... it is not uncommon for the trade price not to reflect the value of the underlying holdings... which can be come a serious issue should the gap widen enough to make it interesting for a break up bid.
 
Thanks for that info folks. From a taxation point of view they are taxed like shares is the consensus opinion, although there has not been a definitive response on this from revenue. They are basically a company that holds shares in other companies as assets so definitely not UCITS is my understanding. Also most I have looked at trade at a discount to their underlying assets of upto 10%. Presumably the danger of overpaying occurs if the discount is small or if you pay a premium over its underlying assets
 
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On our 1-day investment training seminars, we teach people about investment trusts. There are over 350 separate investment trusts listed on the London Stock Exchange, and it is our view that they are the best fund type. They are bought and sold through a stockbroker just like shares. Compared to non-listed funds, like life company unit-linked funds in Ireland, unit trusts in the UK, UCITs in Europe and Mutual funds in the US, listed funds like passively-managed exchange-traded funds (ETFs) and investment trusts (actively-managed) come with lower costs, better transparency and superior corporate governance.

If you email me to [email protected] I'll arrange for you to be sent a copy of our research note on investment trusts. I also cover them in my book 3 Steps to Investment Success.

Rory Gillen
GillenMarkets.com
 
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