Investment trusts

Investment trusts are listed companies whose sole business is buying shares in other companies. They are not open-ended, like OEICs and unit trusts. Instead, they raise a fixed amount of money from investors which is used to create a fixed number of shares that are traded on the stock market, just like the shares of other companies.

Unlike unit trusts, the price of the investment trust reflects supply and demand, not the underlying value of the assets. This means the value of the investment trust may actually be at a discount or premium to its asset value.  

Investment trusts are often referred to as closed-ended funds. Once the trust has issued shares, it is measured according to two its share price and the value of its underlying assets. These two values can move independently of each other – if demand for the shares is high, the share price may move above the value of the assets, known as a premium. But, if demand is low, the trust’s price may drop below the asset value, known as a discount.

Investment trust discounts may increase if the external economic environment is difficult, particularly if the underlying assets in a trust are considered illiquid (hard to buy and sell).