Standard Life Investments

Investment trusts

What are they?

Investment trusts are a longstanding form of collective investment, with their origins dating back as far as the 1860s. Investment trusts are listed on the London Stock Exchange and investors hold shares not units. The share prices of investment trusts are subject to stock market supply/demand factors and changes in general investor sentiment. The prices can and will frequently differ from the value of the underlying assets.

They provide a means for the investor to gain diversified exposure to the stock market or asset class and enjoy a number of unique features, such as the ability to ‘gear’ (borrow money) to seek to enhance returns and to retain income to allow them to smooth dividend payments, helping them to stand out as attractive options in an increasingly complex investment landscape. This means they can play an important part in the composition of an investment portfolio.

How do you invest?

Investment trust shares are traded on the stock market. The principal means of investing are through a stockbroker or, an online broker. You can invest a lump sum amount or on a regular basis – from as little as £50 a month.

What are the key benefits of investment trusts?

  • Typically, investment trusts are an economical way to invest in the stock market. Most have low charges, with dealing and administration costs pooled.
  • Unlike unit trusts and OEICs, investment trusts are closed-ended, meaning there's only a limited amount of shares for sale. So when investors buy and sell these shares, the trust's underlying portfolio of investments isn't affected. This lets the fund managers take longer-term investment decisions.
  • The fund managers are also able to borrow money, or 'gear' their portfolios to exploit a favourable purchasing opportunity without having to sell existing investments.
  • Investment trusts were designed to provide a cost-effective means of investing in various companies and / or asset classes, so although you buy shares in only one investment trust, you're accessing a diversified portfolio.
  • Since investment trusts are companies listed on the stock market, they have independent boards of directors directly answerable to the shareholders (as an investor that is you).
  • Investment trusts have the ability to smooth dividend payments by holding back money in the good years to maintain regular income payments during periods of market volatility and weakness.

Investors, preferably with the help of a stock broker or IFA, should decide if an investment trust suits their needs and risk tolerance, and if so, establish which trust best suits their investment objective.

Read our Capabilities Brochure for more information on investment trusts in general and the Standard Life Investments' trust range in particular.