Investment trusts explained
What are investment trusts?
Investment trusts – such as TR Property – are vehicles with shares that are traded on a stock exchange. Investors’ money is pooled and invested into carefully selected underlying assets. Different trusts have different aims and strategies – some have very wide remits, while others are more focused.
Investment trusts are overseen by a board of independent directors, who represent the interests of the shareholders and appoint the day-to-day managers of the fund.
About closed-ended trusts
TR Property is a closed-ended investment trust, which means that it has a fixed number of shares, allowing the manager to focus solely on the portfolio and performance. The shares are listed on the London Stock Exchange.
In contrast, the manager of an open-ended fund has to negotiate the ebb-and-flow of investor money which can dictate the timing of the purchase or sale of investments. In extreme conditions, investors have found their money “locked in” to open-ended funds.
Other benefits of closed-ended investment trusts include:
- Cost efficiency
- Regular cash flow for investors
- Independent oversight
- Strategic use of leverage
The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. The market value of the shares of TR Property may not reflect the underlying net asset value of the investments held by TR Property. TR Property is able to borrow to raise further funds for investment purposes if the fund manager and the board of directors consider that it may be commercially advantageous to do so. This is generally described as “gearing”. An investment trust which has made investments as a result of gearing may have a more volatile share price as a result; gearing can increase shareholder returns in rising markets but conversely can increase the extent to which the value of the funds attributable to shareholders decreases in falling markets. Please see the Key Information Documents (KIDs) for further details on the risks. If you are in any doubt as to the suitability of an investment, please take professional advice.
Investment Trust FAQs
How do investment trusts like TR Property work?
How does the TR Property share price relate to its net asset value (NAV)?
What is the difference between a REIT (real estate investment trust) and an investment trust?
What is gearing?
What are tax wrappers?
How are investment trusts regulated?
Index-linked income is a valuable safe haven which is under-appreciated, while real assets should form part of any inflation-proofing in a portfolio. We continue to focus on companies with assets which tenants both need and can afford.
Marcus Phayre-Mudge, fund manager