Investment Trust Foundations · Investment Trusts
An investment trust gives shareholders an interest in a company that owns a portfolio. Understanding that extra layer of ownership explains how its price, income and decisions work.
Own the company that owns the assets
In this guide, investment trust means the listed investment companies commonly described by that name in the UK. You buy shares in the company. The company owns its investments, which may include other businesses, bonds or private assets. A personal family trust is a different arrangement.
Suppose a company has £240 million of investments, £20 million of liabilities and 100 million ordinary shares. Net assets are £220 million, or £2.20 per share. Owning 500 shares gives exposure to a small proportional interest, rather than direct ownership of specified securities in the portfolio.
Trace where your money goes
When you buy existing shares from another investor, the purchase money normally goes to the seller. The portfolio manager does not receive a fresh contribution to invest from every exchange transaction. New share issues are a separate transaction that can raise capital for the company.
This distinction makes a useful reading exercise. Draw two boxes, one for the company portfolio and one for shareholders trading shares. Add an arrow between shareholders for an ordinary trade. Add a separate arrow into the company for a new issue. The arrows describe different economic events.
Start with the mandate
A structure alone does not determine the investment risk. A diversified equity portfolio and a concentrated private asset portfolio can both sit inside listed companies. The first research question is what the company is allowed to own and what it actually owns.
Write down the investment objective, largest exposures, borrowing arrangements and how the assets are valued. If these cannot be explained in plain language, a familiar company name is not enough to support an investment decision.
Try it yourself
A trust has £180 million in assets, £30 million in liabilities and 50 million shares. What are net assets per share?
Show the worked answer
Net assets are £150 million. Dividing by 50 million shares gives £3 per share. This calculation does not determine the exchange price.
Further reading
Educational material, not a recommendation to buy or sell a fund. Numerical examples are hypothetical. This guide focuses on listed investment companies commonly called investment trusts in the UK. Product terms, access and tax treatment vary by jurisdiction.
