Blog

Would you like more volatility?  I am often asked by clients why we don’t utilise Investment Trusts bearing in mind their cost effective structure.  There are two simple reasons, firstly an Investment Trust can borrow money in order to invest dramatically increasing the risk and secondly as “close ended” their selling price can be worth less than the value of their assets and sometimes their buying price can be worth more than the value of their assets.

This again enhances the risk, but also enhances both the up and the downside.  This was highlighted by an article in the Saturday Telegraph 11 April highlighting that the top Unit Trust over the last 12 months produced £2,617 for each £1,000 invested and was Scottish Widow’s Latin American Fund the equivalent top Investment Trust returned a whopping £7,209 and was Ecofin Water and Power Opportunities.

However on the downside the difference was equally as shocking.  The worst Unit Trust performance was Legg Mason Japan Equity who turned £1,000 into £344 and yet the worst Investment Trust was a Global Special Opportunities Trust that managed to return just £46.06 per £1,000.

The fifth worst Unit Trust was CF Canlife UK Smaller Companies which returned £553 and yet the fifth worse Investment Trust still only returned £146.05.

Roughly translated, that it is a whopping x% between the two best performers and an incredible y% between the two worst performers.

We feel that there is enough risk for most of our clients with Unit Trusts, but for our younger more adventurous ones we are likely to include Investment Trusts going forward – watch this space.

 

 

Colin Lawson, Managing Partner