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8 Important Things to Know about a Trust

Part of the Reading the Financial Pages For Dummies Cheat Sheet (UK Edition)

Reading the financial pages, you’ll come across lots of mentions of trusts. Trusts are investment vehicles managed by city professionals. You give them your money, they add it to a pot with lots of other peoples’, and buy the shares for you. The essential bits of info you need about a trust are:

  • Its Net Asset Value. This is the underlying value of the trust, calculated by deducting all its liabilities, including loan capital and preference shares, from its total assets. NAV is usually expressed in terms of NAV per share. Can also be applied to listed companies.

  • Its discount to NAV. This is the amount by which the market capitalisation of the trust undershoots the NAV. Discounts to NAV are normal, because the stock market needs to allow for the costs that would be incurred during any asset disposal (for example, if the company were being wound up).

  • Its premium to NAV: Calculated in the same way. Many investors will avoid an investment trust on principle if it carries a premium, believing it to be dangerously overheated.

  • Its initial fees: For unit trusts only. How much it charges you to invest at the ouset.

  • Its annual management fees: For unit trusts only. What it charges you annually to control your investment.

  • Its bid/offer spread: The difference between the price you’d pay for buying into the trust and the price for selling your stake.

  • Its dividend distribution dates: When it pays out.

  • Its performance over 1 year, 3 years and 5 years, measured against both its sector and the market at large.

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