Investment companies appeal to many investors seeking diversified, professionally managed exposure to markets. Established as listed companies, these vehicles pool money from shareholders to invest in a range of assets— such as equities, bonds, or alternative investments which are typically managed by an experienced fund manager.
With a closed-ended structure, investment companies issue a fixed number of shares that are traded on the stock exchange. This allows managers to take a long-term investment view without the need to meet redemptions during market volatility. As a result, they can invest in less liquid assets—such as smaller companies, property, or infrastructure—potentially enhancing returns.
Another advantage of the structure is that it can use gearing (borrowing) to amplify returns. When markets perform well, this can significantly boost gains, although it also introduces greater risk during downturns. Furthermore, because the shares trade on the market, they can be bought at a discount or premium to the trust’s underlying net asset value (NAV), offering opportunities for value-conscious investors.
Investment trusts can also have a strong record of dividend reliability and growth, supported by their ability to retain some of their underlying income each year or by using capital reserves. Transparency and governance of investment companies also add to their appeal.
A key drawback of investing in investment companies is that in addition to the risks associated with the underlying portfolio, the vehicle’s shares can fall further below the value of its underlying assets, even if those assets perform well. This means investors may suffer losses unrelated to the portfolio’s fundamentals, purely due to market sentiment or reduced demand.
