An Investment Trust is a closed-end investment fund structured as a public limited company (plc) that invests in a portfolio of assets on behalf of shareholders.
Structure
Investment trusts are PLCs with:
- Fixed number of shares in issue (closed-ended)
- Independent boards of directors
- Listings on exchanges like the LSE
- Active management by professional fund managers
The closed-end structure means shares are bought and sold on the market rather than created or redeemed like open-ended funds.
Premium/Discount to NAV
Investment trust shares trade at market prices that can differ from net asset value:
| Trading Position | Description |
|---|---|
| Premium | Share price above NAV (investors pay more than asset value) |
| Discount | Share price below NAV (investors pay less than asset value) |
| Par | Share price equals NAV (relatively rare) |
This premium/discount mechanism is unique to closed-end structures and reflects market sentiment about future prospects.
Unique Features
Investment trusts can employ gearing (borrowing) to amplify returns, though this also magnifies losses. They may retain up to 15% of income as revenue reserves, allowing boards to smooth dividend payments during lean years.
UK Market
The LSE hosts one of the world's largest investment trust markets. Sectors range from global equities to specialist infrastructure, with some trusts operating for over 100 years. Most are AIC members, subject to additional governance standards beyond standard PLC requirements.