What is an Investment Trust?
An investment trust is a form of collective investment, which has been a part of the investment landscape in the UK for over 140 years. Most investment trusts are listed on the London Stock Exchange and because they are traded on the stock exchange they are subject to the scrutiny and corporate governance that governs UK Public Limited Companies. This includes oversight by a Board of Directors which has the responsibility to act in shareholders’ interests at all times. Investment trusts have a set number of shares (and are sometimes referred to as closed-ended funds). To invest in a trust, you buy shares from someone willing to sell them, unlike open-ended funds (i.e. Unit Trusts, OEICs), where, typically, new units are created when someone wants to invest. The combined value of all the assets that an investment trust holds is known as the Net Asset Value (‘NAV’). The price of units in a unit trust is determined by the value of the assets in that fund and will rise or fall in line with the value of those assets. Shares in an investment trust can be bought and sold at a price that is higher or lower than NAV. So it’s possible to buy shares in an investment trust at a lower price than the value of the underlying assets (known as a discount to NAV) or when the share price is higher than the NAV (when the shares are trading at a premium). Unlike open-ended trusts, investment trusts do not have to pay out all of their income to shareholders each year and can ‘smooth’ payments to investors by retaining up to 15% of its income, saving some in years it earns more to subsidise the years it earns less. While growth in income cannot be guaranteed, Witan Pacific’s aim is to grow its dividend in real terms, each year, with twice yearly dividend payments to shareholders and has grown its dividend each year for over the last 14 years. However, please be aware that past performance is not a guide to future performance and see here for a history of Witan Pacific’s performance.