If you’re not a professional investor, then it’s easy to wind up feeling like a really small part of a much larger machine.
However, an investment trust structure can do a lot to alleviate this. Investment trust can be a truly safe harbor given how shareholder engagement can help mitigate some of the huge challenges currently facing investors.
Every Little Bit Helps
Pensions freedoms let investors move their own pension money with relative ease between assets. These freedoms are now seriously entrenched, and so there is growing awareness of the trade-offs involved between how reliable annuities are and how flexible investing can be. Meanwhile, conventional income sources are proving to be not so reliable during the current economic cycle than they did in the past.
Investment trusts enjoy a distinct advantage in terms of generating income, given their capacity to build up some revenue reserves when taking shares of profits. Since they can smooth out income distributions in some ways, they remain more steady through times both good and bad. If a board doesn’t sufficiently protect the income of investors, then investors can make themselves heard since they have the power to change non-executive members of that board. In at least this way, investment trust investors can have their cake and eat it too.
Now that the financial crisis is behind everyone, banker bashing is starting to fall out of fashion once more. However, the long-running legacy from that period is that everyone is going to be far more deliberate about what they do with their money. Everyone is going to want things run for their own advantage.
With investors having the power to vote on crucial issues about trust management, the realm of investment trust is going to give investors far more influence over what happens with their money. Ultimately, this might go as far as altering the management or even the mandate of a certain trust. Such processes remain atypical, as they are not easy to pull off. Still, they provide investors the reassurance of having some kind of backstop.
On the other hand, individuals who would like to take far less drastic actions can enjoy other advantages inherent to the trust structure, similar to those that invest in the Henderson Eurotrust. Investment trusts are something that can be traded, just like a stock that is publicly listed. That means someone can wash their hands of the fund, and there are no exit fees to deal with. The only true financial consideration is the share price at the time of redemption.
Over the last decade, bonds have been stifled in a mire of low yields, some of them historically low. As such, there has been a steady appetite for income. This has resulted in professional investors going down some rather interesting paths. Institutions have turned to sectors such as asset leasing and mid-cap direct lending to fuel income, resulting in serious gains in these sectors.
In otherwise open-ended structures, such asset classes would probably be unavailable to non-professional investors. However, investment trusts have the kind of liquidity that means they can flourish under these circumstances. Specific examples of these might include Standard Life Private Equity and Greencoat UK Wind. Both of these invest in various asset classes that the average citizen can’t get access to.
An Ethical Wave
One more growing trend in the investing world is the rise of understanding what roles investors might play in making sure that capitalism is fairer to everyone involved and also greener and more sustainable. Fund managers are more often than ever encouraged to get engaged with companies they choose to invest in, specifically in the support of better practices. Research suggests these lead to getting better returns. Investment trusts are among the longest-term investors throughout the business, given their fixed capital structure which lets them stay invested even in the face of possible redemptions. That means they’re in a great position for the growing engagement revolution.
Every investment decision needs to happen in a broader context of various parameters, such as investment goals and risk appetite. However, it’s also important to consider the actual structure of any investment. For at least some of the crucial considerations modern investors face, investment trusts might just be the ideal place to suit their specific needs.