The world of investing has become increasingly interconnected over the past decades. Globalisation and communication has enabled companies to conduct their business at huge scale. This means that traditionally British companies now have vast oversees operations which gives them exposure to the economies of developed and emerging markets across the globe. Whilst our expertise lies in the relationships we have built with UK companies. It would be much harder to establish relationships with companies located in overseas markets. In a similar way, we may want exposure to precious metals such as gold in order to provide a defensive hedge to portfolios without having to actually own the physical asset. Outlined below is a description of the types of investment products we hold which compliment traditional equity portfolios.
Investment Trusts
An investment trust is a public limited company that aims to make money by investing in other companies. We hold various different investment trusts which each have their own unique strategy and theme used to generate returns. We have established relationships with the management teams of the trusts we own and attend regular meetings to ensure each trust’s strategy is in line with our rationale for the purchase. By meeting with the management and conducting our own in house analysis, we can evaluate which particular trusts style is appropriate for an individual clients needs. A key benefit of holding an investment trust over a single share is diversification. If an investor wants exposure to a particular sector, for example technology, we can allocate a technology fund which contains 50/60 top technology companies. This spreads the risk and will likely reduce volatility compared to buying individual shares. The trusts can also be very large in size, in some cases managing several billion pounds worth of assets. This brings about benefits including manager expertise, liquidity and economies of scale.
Investment Trusts are traded like shares on the London Stock Exchange and can either trade at a discount or premium to their net asset value. If they are trading at a premium, the trust’s overall assets, the total value of the shares the trust owns is worth less than the value of the company. This is not necessarily a bad thing and can often reflect the quality of the management, whether the current theme or trend is in favour and various other factors. If a trust is trading at a discount, this could present an opportunity to purchase the shares and earn additional profits if the discount begins to narrow. However it is never a simple case of a premium being bad and a discount being a good thing, various factors will combine together to form our final judgement on whether a particular trust is an appropriate addition to a clients portfolio.
Unit Trusts
Unit trusts are open ended investment vehicles with no fixed number of shares or units available. As more people invest, more units are created so you will always receive the value of the shares at net asset value. They are pooled investment vehicles so provide access to a diversified portfolio of assets which are run by an investment professional. There are a vast number of unit trusts available on the market which can provide access to growth, income, bonds, equities or a particular investment theme.
ETF’s
An Exchange Traded Fund, commonly known as an ETF, is a type of pooled investment that operates in a similar way to a unit trust. They will typically track the performance of an index, sector or commodity but unlike a unit trust, they can be bought and sold on a stock exchange in a similar way to a share. ETF’s can be structured to track the price of anything from an individual commodity to a large number of companies. We have often used ETF’s to gain exposure to the price of physical gold or to a specific sector such as cybersecurity. ETF’s can be particularly useful in terms of tactical asset allocation to generate an additional return where there maybe an opportunity in the market or protect downside returns by adding an asset as a hedge.