Glossary · UK
What is Investment Trust?
A closed-ended, publicly listed company that pools investors' money to buy a portfolio of assets, with its own share price that can trade above or below the value of its underlying holdings.
Full Definition
An investment trust is a public limited company, listed on the London Stock Exchange, whose business is to invest a pool of shareholders' money in a portfolio of assets -- typically shares, bonds, property or infrastructure -- managed by a professional fund manager on the shareholders' behalf. Unlike an OEIC or unit trust, an investment trust is "closed-ended": it issues a fixed number of shares, which investors then buy and sell between themselves on the stock market, rather than the fund itself creating or cancelling units to meet demand. This structural difference matters in practice, because an investment trust's share price is set by ordinary market supply and demand and can trade at a premium or a discount to its Net Asset Value (NAV) -- the underlying value of the assets it holds -- whereas an open-ended fund's price simply tracks its NAV. Because an investment trust does not have to sell assets to meet investor withdrawals in the way an open-ended fund sometimes must, it can hold a higher proportion of illiquid assets, such as direct property, infrastructure or unlisted companies, and can also borrow money ("gearing") to invest further, which can amplify both gains and losses. Investment trusts can be held within a Stocks and Shares ISA or a SIPP in the same way as other listed shares, and many pay a regular dividend, with some -- known as "dividend heroes" -- having a long track record of increasing their payout every year by holding back some income in good years to smooth payments in leaner ones, a feature not generally available to open-ended funds.