Some 36 investment trusts pre-date the Queen’s accession to the throne, research from AJ Bell has shown.
The investment trust industry, which can trace its roots back to 1868, has witnessed the reign of six British monarchs.
Laith Khalaf, head of investment analysis at AJ Bell, said: “In total, 36 investment trusts have been around since before Queen Elizabeth II acceded to the throne, including well-known trusts like Scottish Mortgage, City of London and Bankers trust, though names and investment mandates may have changed over the years.
“The five oldest have already celebrated double jubilees, having been in existence for more than 140 years.”
F&C Investment Trust Ord is the oldest investment trust, dating back to March 1868, followed by Investment Company Ord which was founded in November of that year.
Khalaf said: “Despite its longevity, the investment trust industry’s primacy has been usurped by a relatively young pretender in the form of unit trusts. The first such fund was launched by M&G in 1931 and today open-ended funds account for around £1.5 trillion of investment, compared to around £270 billion from investment trusts.”
According to Khalaf, some investors may prefer investment trusts because there is a live price throughout the day and shares in the investment trust trade on the market like ordinary stocks, allowing investors to buy and sell off each other. However, the price can deviate from the value of the underlying portfolio of securities, depending on demand for the investment trust itself.
Khalaf recommends investors look at the track record of an investment trust to ascertain what its discount has been historically to gauge whether it represents a good deal and the same applies to trusts trading at a premium.
Khalaf said: “The existence of a discount and premium does make investment trusts more complex than open-ended funds. It also makes them more volatile, because as well as variation in the price of the underlying portfolio, there is movement in the discount or premium.
“Investment trusts are riskier than open-ended funds for another reason too; they are able to borrow money to invest and this is common practice. This amplifies returns in the bull markets, but exacerbates losses in downturns, so investors need to be prepared for a bumpier ride with investment trusts. But over the long term, the ability to borrow to invest should mean that investment trusts are able to deliver superior performance.”
When it comes to investing in illiquid assets such as commercial property, investment trusts are generally preferable, says Khalaf, because open-ended funds might have to suspend trading if lots of investors leave at once.
Investment trusts can also be useful for income seekers because they can retain dividends in good years to top up dividend payments in bad years.
However, Khalaf said it doesn’t need to be an either/ or situation for investors, who can have a portfolio that includes both and take advantage of the different investment strategies that lend themselves to one or the other.
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