Information about Investment Trusts
Investment trusts are companies that invest in the shares of other companies for the purpose of acting as a collective investment.
Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches. The board will typically delegate responsibility to a professional fund manager to invest in the stocks and shares of a wide range of companies (more than most people could practically invest in themselves). The investment trust often has no employees, only a board of directors comprising only non-executive directors. However in recent years this has started to change, especially with the emergence of both private equity groups and commercial property trusts both of which sometimes use investment trusts as a holding vehicle.
Investment trusts are traded on stock exchanges like other public companies. The share price does not always reflect the underlying value of the share portfolio held by the investment trust. In such cases, the investment trust is referred to as trading at a discount (or premium) to NAV (net asset value).
The investment trust sector, in particular split capital investment trusts suffered somewhat from around 2000 to 2003 (see "The Split Capital Investment Trust Crisis" by Andrew Adams) after which creation of a compensation scheme resolved some problems.
One of the key differences between an investment trust and a unit trust, is that an investment trust manager is legally allowed to borrow capital to purchase shares. This leverage may increase investment gains but also increases investor risk.
Every Split Capital Trust will have at least two classes of share:
In order of (typical) priority and increasing risk
Splits may also issue Packaged Units combining certain classes of share, usually reflecting the share classes in the trust usually in the same ratio. This makes them essentially the same investment as an ordinary share in a conventional Investment Trust.
Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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Investors' money is pooled together from the sale of a fixed number of shares a trust issues when it launches. The board will typically delegate responsibility to a professional fund manager to invest in the stocks and shares of a wide range of companies (more than most people could practically invest in themselves). The investment trust often has no employees, only a board of directors comprising only non-executive directors. However in recent years this has started to change, especially with the emergence of both private equity groups and commercial property trusts both of which sometimes use investment trusts as a holding vehicle.
Investment trusts are traded on stock exchanges like other public companies. The share price does not always reflect the underlying value of the share portfolio held by the investment trust. In such cases, the investment trust is referred to as trading at a discount (or premium) to NAV (net asset value).
The investment trust sector, in particular split capital investment trusts suffered somewhat from around 2000 to 2003 (see "The Split Capital Investment Trust Crisis" by Andrew Adams) after which creation of a compensation scheme resolved some problems.
One of the key differences between an investment trust and a unit trust, is that an investment trust manager is legally allowed to borrow capital to purchase shares. This leverage may increase investment gains but also increases investor risk.
History
The first investment trust was started in 1868 by F&C. The objective of the Foreign & Colonial Investment Trust was 'to give the investor of moderate means the same advantages as the large capitalists in diminishing the risk of spreading the investment over a number of stocks'. As well as being the oldest investment trust, it is now also the largest global growth investment trust in the world and still open to investment. It currently owns shares in more than 500 companies in 30 different countries. (Source: F&C).Geographic distribution
Investment trusts are common in the UK and well established within legal and regulatory frameworks. In other jurisdictions similar types of closed end investment vehicle exist but may be known by different names. See collective investment schemes for more information.Split Capital Investment Trusts
Traditional 'Investment Trusts' normally offer only one type of share (ordinary shares) and have a limited life. Split Capital Investment Trusts (Splits) have a more complicated structure. Splits issue different classes of share to give the investor a choice of shares to match their needs. Most Splits have a limited life determined at launch known as the wind-up date. Typically the life of a Split Capital Trust is five to ten years.Every Split Capital Trust will have at least two classes of share:
In order of (typical) priority and increasing risk
- Zero Dividend Preference shares - no dividends, only capital growth at a pre-established redemption price (assuming sufficient assets)
- Income shares - entitiled to most (or all) of the income generated from the assets of a trust until the wind-up date, with some capital protection
- Annuity Income shares - very high and rising yield, but virtually no capital protection
- Ordinary Income shares (aka Income & Residual Capital shares) - a high income and a share of the remaining assets of the trust after prior ranking shares
- Capital shares - entitiled most (or all) of the remaining assets after prior ranking share classes have been paid; very high risk
Splits may also issue Packaged Units combining certain classes of share, usually reflecting the share classes in the trust usually in the same ratio. This makes them essentially the same investment as an ordinary share in a conventional Investment Trust.
See also
References
External links
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Collective investment schemes:
Common contractual funds • Fonds commun de placements • Investment trusts • Hedge funds • Unit trusts • Mutual funds • ICVC • SICAV • Unit Investment Trusts • Exchange-traded funds • Offshore fund • Unitised insurance fund Styles and theory: Active management • Passive management • Index fund • Efficient market hypothesis • Socially responsible investing • Net asset value Related Topics: List of asset management firms • Umbrella fund • Fund of funds • UCITS |
In financial markets, a share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REIT's. In British English, use of the word shares
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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director is an officer (that is, someone who works for the company) charged with the conduct and management of its affairs. A director may be an inside director (a director who is also an officer or promoter or both) or an outside, or independent, director.
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A non-executive director (NED, also NXD) or outside director is a member of the board of directors of a company who does not form part of the executive management team. He or she is not an employee of the company or affiliated with it in any other way.
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In economics and financial theory, analysts use random walk techniques to model behavior of asset prices, in particular share prices on stock markets, currency exchange rates and commodity prices.
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The Net Asset Value or NAV is a term used to describe the value of an entity's assets the value of its liabilities. The term is commonly used in relation to collective investment schemes. It may also be used as a synonym for the book value of a firm.
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For UIT, a U.S. fund type, see .
A unit trust is a form of collective investment constituted under a trust deed.Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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In finance, leverage (or gearing) is using given resources in such a way that the potential positive or negative outcome is magnified. It generally refers to using borrowed funds, or debt, so as to attempt to increase the returns to equity.
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Motto
"Dieu et mon droit" [2] (French)
"God and my right"
Anthem
"God Save the Queen" [3]
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"Dieu et mon droit" [2] (French)
"God and my right"
Anthem
"God Save the Queen" [3]
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A closed-end fund is a collective investment scheme with a limited number of shares.
In the U.S. legally they are called closed-end companies and form one of three SEC recognized types of investment company along with mutual funds and unit investment trusts.
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In the U.S. legally they are called closed-end companies and form one of three SEC recognized types of investment company along with mutual funds and unit investment trusts.
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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A closed-end fund is a collective investment scheme with a limited number of shares.
In the U.S. legally they are called closed-end companies and form one of three SEC recognized types of investment company along with mutual funds and unit investment trusts.
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In the U.S. legally they are called closed-end companies and form one of three SEC recognized types of investment company along with mutual funds and unit investment trusts.
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An income trust is an investment trust that holds income-producing assets. The term also designates a legal entity, capital structure and ownership vehicle for certain assets or businesses. Its shares or "trust units" are traded on securities exchanges just like stocks.
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A royalty trust is a type of corporation usually involved in mining. It is taxed according to special regulations, whereby its profits are not taxed at the corporate level provided a certain high percentage (e.g. 90%) of profits are distributed to share holders as dividends.
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A Real Estate Investment Trust or REIT (pronounced /ɹiːt/) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes.
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A Venture Capital Trust or VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide capital finance for small expanding companies and capital gains for investors.
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Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.
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A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so.
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common contractual fund (or “CCF”).
The CCF is an unincorporated body established by a management company under which the participants by contractual arrangements participate and share in the property of the fund as co-owners (specifically tenants in common).
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The CCF is an unincorporated body established by a management company under which the participants by contractual arrangements participate and share in the property of the fund as co-owners (specifically tenants in common).
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Fonds commun de placement translates to "Pooled funds", and are open-ended collective investment funds based that are neither trust of company law based. They are similar to Common contractual funds in Ireland.
Commonly referred to as FCP or F.C.P.
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Commonly referred to as FCP or F.C.P.
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A hedge fund is an investment fund structured to avoid direct regulation and taxation in major host countries and which charges a performance fee based on the increase of the value of the fund's assets.
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For UIT, a U.S. fund type, see .
A unit trust is a form of collective investment constituted under a trust deed.Found in the UK, Ireland, Australia, New Zealand, South Africa and British Isles offshore jurisdictions, unit trusts offer access to
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mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
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An ICVC or Investment Company with Variable Capital is a type of open ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations of the United Kingdom.
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A SICAV is an open-ended collective investment scheme common in Western Europe especially Luxembourg, Switzerland, Italy and France. SICAV is an acronym for Société d'investissement à capital variable which can be translated as
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For the UK fund type, see .
A Unit Investment Trust (UIT) is a US investment company offering a fixed (unmanaged) portfolio of securities having a definite life. UITs are assembled by a sponsor and sold through brokers to investors...... Click the link for more information.
Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g.
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An offshore fund is a collective investment scheme domiciled in an Offshore Financial Centre, for example British Virgin Islands, Luxembourg, Cayman Islands or Dublin. For the purposes of the Income and Corporation Taxes Act 1988 of the UK, an offshore fund is one which is governed
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Unitised insurance funds are a form of collective investment offered through life assurance policies.
Mainly found in the UK and British Isles offshore jurisdictions, both single premium and regular premium policies offer access to wide range and types of assets for all
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Mainly found in the UK and British Isles offshore jurisdictions, both single premium and regular premium policies offer access to wide range and types of assets for all
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