CHILDREN
that is powerful,” said Simon
Crinage, head of investment trusts
at JP Morgan Asset Management.
“This is due to the impact of
dividend reinvestment and the
compounding effect is quite
significant compared with other
collectives.”
How you choose an IT depends
on how comfortable you are with
risk. Most ITs used to be UK-only,
but many have a global dimension
now. Emerging markets may offer
greater returns in the long run,
but this comes at the expense of
higher volatility, so you must be
comfortable with that trade-off.
“Time after time it has been shown
equity is better than most other
investment types such as bonds and
cash,” said Crinage. “Then it comes
down to finding a good portfolio
manager with a good track record.”
Now, there are a lot of ITs and
many of them have a long track
record. Some have been around for
well over a century.
Crinage advises investors to stay
away from the latest trend or fad,
as these can quickly fizzle out. But
investors should not be worried
about whether a trust is trading
at a discount or premium, as it is
very much a case of swings and
roundabouts and tends to work
itself out over time.
“You may even exploit the
discount if you choose, by buying
more when trading at a discount,
but this isn’t really necessary as you
are already committed to saving for
the long-term and you have to be
prepared to take the rough with the
smooth,” said Crinage.
He adds that large premiums
may require a second look, as these
are usually specialist trusts and not
well diversified; therefore they are
not what you want for your child’s
nest egg.
DOWNSIDE?
WHAT DOWNSIDE?
One thing to be aware – but not
scared – of is liquidity, says Alan
Porter, manager of the Securities
Trust of Scotland.
“Investment trusts can be quite
illiquid depending on the size of
10
INVEST NOW, OR AS
SOON AS YOU ARE
COMFORTABLE, MAKE
IT LITTLE AND OFTEN IF
YOU DON’T HAVE LARGE
SUMS AND REINVEST
YOUR DIVIDENDS
your investment,” he explained.
While this is unlikely to be an
issue for private investors, a large or
institutional investor may have to
consider this more carefully.
“I only invest in large liquid
shares,” said Porter, “but liquidity of
my company’s shares is illiquid.