Different Plots in a Tale of Two Trusts

Article excerpt

INVESTMENT trusts have enjoyed a resurgence of interest in the past few years and have often commanded a higher profile than their close cousins, the unit trusts.

Investment trusts may have won the publicity war but, says Philip Warland, the director general of the Association of Unit Trusts and Investment Funds, unit trusts have won the battle for investors' savings. The popular investment trust savings plans last year attracted pounds 175m from private investors, after pounds 250m in 1994. Total net investment in unit trusts, meanwhile, was close to pounds 7bn.

A lot of unit trust money comes from institutional purchases by life insurance companies but the figures do highlight the difference in scale between the two types of investment funds. Investors hold a total of pounds 113bn in unit trusts. The investment trust industry manages about pounds 45bn, much of it in highly specialised international funds run mainly for City institutions.

Unit and investment trusts are funds that pool investors' money as a means of spreading risk across a portfolio of shares or other investments that is, typically, much wider than a typical small investor could afford to own. Both offer the benefit of full-time professional investment management.

But the big difference is that unit trusts are open-ended funds divided into units, while investment trusts are closed-ended companies that issue their own shares.

Open-ended means unit trust managers can create or cancel units in their funds according to fluctuating demand from investors. The unit price should always reflect directly the value of the underlying investments. …