Investment Trusts – Funds for Your ISA?

24 Feb

What is an Investment Trust?

An investment trust is a type of collective vehicle, investing in a portfolio of shares and securities.

It is a listed company with shares quoted on the London Stock Exchange, which invests in the shares of other companies or in fixed-interest securities, unquoted securities or property. An investment trust has an independent board of directors who are responsible for looking after shareholders’ interest.

An investment trust works by pooling together investors’ money and then investing in the stocks and shares of a wide range of companies, supplemented by other securities. This enables individuals with relatively small amounts of money to gain exposure to a diversified and expertly managed portfolio of investments.

Take care with the mandate and on-going risk profile of the Investment Trust as they may use alternative assets and borrow (gear up) to buy more shares.  You need to ensure that the actions taken by management in the Investment Trust are aligned with your attitude and acceptance to risk and volatility.

You can invest into Investment Trusts directly or through tax efficient wrappers, such as ISAs and Pensions.

Why Pick Investment Trusts?
Personally, as an IFA specialising in Investments & Tax Planning, Investment Trusts commonly will form part of a clients portfolio, to target above average returns and to diversify their portfolio.
 
Emerging markets, growth and income focused portfolios are expected to dominate Investment Trust selections for 2012 (research from the Association of Investment Companies).
 
Low Interest Rates, inflation and other concerns over the global markets, predictable income streams and the long-term growth story of developing nations are set to feature heavily in investment recommendations this year.
 
I recommend that you take investment advice, from a suitably qualified person before making any investment  decisions.
 
I would at all times recommend combining different asset classes and investment vehicles, to diversify your portfolio and these need to be managed effectively to help you benefit from the market imperfections.
 
The following is not a recommendation, it is to highlight some successful and popular Investment Trusts, which I either use or may use in the future:-
 
1.  Personal Assets Trust – the investment objective of the Company is to protect and increase (in that order) the value of shareholders’ funds over the long term and to earn as high a total return as is compatible with a lower level of volatility than the FTSE All-Share Index.
 
2. The Edinburgh Investment Trust – invests primarily in UK securities (but upto 20% outside the UK) with the long term objective of achieving growth in value and dividends (by more than the rate of UK inflation). The Company borrows money to provide gearing to the equity portfolio up to a maximum of £200 million. Use of derivative instruments is permitted (to a maximum of 10% of the value of the portfolio and a maximum of 15% may be invested in FTSE 100 futures. Other derivative contracts may be employed subject to an aggregate of the above limits and to the prior approval of the Board.)
 
3.  Aberdeen Asian Income – the objective of Aberdeen Asian Income Fund Limited is to provide investors with a total return primarily through investing in Asian Pacific securities, including those with an above-average yield. The Company does not expect, at least initially, to have any significant Japanese exposure.
 
4.  Schroder Asia Pacific – aims to achieve capital growth by investing in equities of companies in Asia, (excluding the Middle East and Japan) and the Far East pacific rim (excluding Australasia).
 
5.  Templeton Emerging Markets – seeks long-term capital appreciation through investment in companies operating in emerging markets or whose stocks are listed on the stock markets of such countries. The base currency of the Trust is GBP.
 
6.  3i Infrastructure – is a listed infrastructure investment company investing mainly in Europe and Asia, with a focus on the Utilities, Transportation and Social Infrastructure sectors. The portfolio is planned to delivered steady returns and a robust cash yield.
 
7.  City Merchants High Yield – objective is to seek to obtain both high income and capital growth from investment predominantly in high-yielding fixed-interest securities. It seeks also to enhance total returns through capital appreciation generated by investments which have equity-related characteristics.

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