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Trust and Volatility

Posted on Thursday, February 04, 2010

We are often asked why it is we prefer Unit Trusts over Investment Trusts when Investment Trusts are often seen as low cost alternatives. The answer comes down to risk.

 

Investment Trusts can borrow money and therefore “gear up” their gains and losses. As they are closed ended companies, supply and demand will also magnify these gains and losses.

 

This can be seen by reviewing the best and worst Investment Trusts over a five year period. The best Unit Trust was Invesco Perpetual Latin American Growth which, from a £1,000 investment produced £3,435. The best performing Investment Trust was Black Rock Latin American that produced £3,507.

 

The worst Unit Trust was Leg Mason US Equity that produced £722 and the worst Investment Trust was Oxford Technology VCT that produced £271.

 

Colin Lawson

Managing Partner

Comments:

A Nesbit, Wednesday, March 17, 2010 - 23:02

We trust that Colin and his team would not have us invested in any bottom quartile funds, whether unit trusts or investment trusts! The top performing investment trust mentioned, Black Rock Latin American, looks even more impressive over 10 years having returned £4246, compared with £3169 from his best unit trust, Invesco Perpetual Latin American Growth. (as at 17 March 2010 –source www.trustnet.com)

A Nesbit, Wednesday, March 17, 2010 - 23:06

For investors seeking a steady income stream, investment trusts are very successful. Dividend cuts during the credit crisis meant some unit trusts struggled to maintain their dividend payments because their structure only allows them to distribute dividend income as it is received from the underlying shareholdings. Investment trusts are able to top up dividend payouts using revenue reserves if there is a shortfall. This facility has helped some investment trusts to pay out steadily rising dividends for years. The trust with the longest record of dividend increases is City of London, which has paid out a higher dividend every year for the past 42 years. It is closely followed by Alliance Trust, Bankers Trust and Caledonia Investments, which have 41-year records of consecutive dividend increases.
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Equilibrium Asset Management (A Limited Liability Partnership) is authorised and regulated by the Financial Services Authority. Equilibrium Asset Management is entered on the FSA register (www.fsa.gov.uk/register/) under reference 452261. The FSA regulate advice which we provide on Investment and Insurance business, however they do not regulate advice which we provide purely in respect of taxation matters. Registered Office: Equilibrium Asset Management LLP, Brooke Court, Lower Meadow Road, Handforth Dean, Wilmslow, Cheshire SK9 3ND. Registered in England and Wales, No: OC316532. VAT Registration No. 884 1704 09.