Investment Trusts

The investment trust sector could prove to be a winner for revenue-thirsty investors.

Although the last twelve months have seen a discount decrease in the investment trust sector, they remain strong enough to generate dividend yields better than anything provided in the unit trust world.

There is a steady demand among investors for investment trusts, which was recently shown by the greatly over-subscribed launch of Schroder Oriental Income trust, which has risen to a 13% premium and reached its net asset value.

This rise has placed Schroder Oriental Income into the same territory as many property investment trusts which currently provide high yields. The average premium for this sector is around 7 per cent, although some trusts manage to reach 11 or 12 per cent. However, in spite of the reasonably high yields, the actual potential to grow capital is limited.

Equity trusts on the other hand often trade at a discount, providing the investor with appealing yields and good, long term forecasts for growth in capital. Yet, one must prepare themselves for risk and accept it as a natural part of investing in equity trusts.

For investors who seek less risk and are willing to receive reduced yields, there are equity trusts available, which generally yield at around 3.5 per cent and trade at par value.

Date: 14.10.05