Investment trusts, a Victorian era savings vehicle, once branded “irrelevant dinosaurs” by Peter Hargreaves, billionaire co-founder of Hargreaves Lansdown, Britain’s biggest investment shop, are experiencing a resurgent boom thanks to renewed interest from savers and investors alike.
Investment trusts are public listed companies designed to generate profits for their shareholders by investing in the shares of other companies.
There are several ways in which investment trusts differ from other investments, primarily the presence of an independent board of directors responsible for safeguarding shareholder interests. For relatively new investors this makes investment trusts significantly safer than other investment methods, as the directors usually have vast experience within the field of investment.
Investment trusts can also be differentiated from more popular investments by the fact that they are always closed-ended. This means that the trust has a fixed number of shares and the fund manager can invest and sell assets when they feel the time is right, rather than when investors leave or join a fund. This helps to make sure that the underlying capital investment base is relatively stable.
Combined with competitive pricing, helpful borrowing powers and extensive shareholder rights, the return of investment trusts are a welcome return to an unstable market allowing investors to lessen risk whilst still being involved with major investment decisions.
The renewal of interest does not come as a surprise to everyone though, as Reginald Green of Emerald Bamboo Investmentsexplains.
“Investment trusts have always been on the peripheral as an alternative investment method. It is hardly surprising that they have experienced a surge in popularity as the current economic climate can make things a little unpredictable and investment trusts help to make people feel more secure with their money”.
“The interesting thing is that major figures on the investment scene such as Peter Hargreaves were slating investment trusts less than 6 months ago, whereas now they are trying their utmost to promote them”.
“I fully expect the resurgent interest in investment trusts to continue, however I would certainly be surprised to see any sort of statements or recognition regarding past comments from the organisations who were condemning investment trusts less than a year ago.”
“It just goes to show, even the most prestigious of financial organisations are prone to miscalculation, and no one can accurately predict trends 100 per cent of the time. Inaccuracy is something we all have to deal with, and it would be nice to hear something in way of an admission that this time, they were wrong”.
Some experts are suggesting that the reason investment trusts have slipped off the radar in recent times is because until last month, investment trusts did not pay commision in return for being promoted and sold whereas their main competitor, unit trusts, did. Financial advisors have not permitted to accept commission since 2012, whilst similar rules were only introduced last month for brokers regarding unit trusts. This move away from the realm of commission based sales seems to have initiated brokers’ sudden rethink on the benefits of investment trusts.
Nigel Walters is an experienced travel and investment blogger, he has been writing articles to help inspire and guide people in the right direction for a number of years, currently doing freelance writing for a number of clients until one day he can eventually run his own investment website.