Investment Trusts, OEICs and Stock ISAs

There are many ways to invest in the stock market. Although many people still invest in individual stocks there are many ways to spread your risks.

If you chose to invest in companies you are relying on one or a few businesses to perform well to make a return on your investment. Individual shares do have the potential for a much greater increase in value and some companies declare very favourable dividend payments, but if a company has a very bad year you can see your stock investment plummet and your dividend income lost.

So to spread risk without building a huge portfolio you can invest your cash in a variety of investment vehicles, of which there are really 2 main options, plus stock ISAs. Stock ISAs are not really any different from choosing an investment trust or OEIC, they just provide you the chance to receive income tax free.

Investment Trusts

Investment trusts are companies which themselves trade on the stock market. Their value is determined by the stock market just like normal equity but they include a wide range of stocks so that you spread your risk. Some Investment Trusts simply track the FTSE100 so that they always contain a balance of shares in line with current market trends.

Investment trusts are “closed end” investment vehicles, which means that they have a set amount of capital and shares within them. The share price of an investment trust will not always reflect the changes in share price of the underlying shares.

Investment Trusts are usually managed by a third party fund manager who specialises in managing equity portfolios. Many investment houses have their own investment trusts and fund managers.

As investment trusts are trading as stocks on the stock exchange they also will generally pay a dividend. However, there are some investment trusts which do not, these are called Zero Dividend Preference shares. With these you are purely investing cash in groups of equities and rely in stock market growth.

Real Estate Investment Trusts (REIT)

In addition to standard investment trusts there are now also Real Estate Investment Trusts (REIT) in the UK. These specialise in the property market and trade on the stock exchange in the same way as investment trusts. However, as they invest in the property market they do not have to pay corporate income tax. They have to distribute at least 90% of their total income to shareholders.

REITs have only been around since 2007 however there are already 5 REITs in the FTSE 100: British Land, Hammerson, Land Securities, Liberty International and Slough Estates. These 5 REITs are often referred to as SEGRO.

OEICs

OEICs (pronounced oiks) are Open Ended Investment Companies. Rather than trading on the stock exchange these are valued each day based on the stock value of the underlying shares. They are called “open ended” because the amount of shares held within them is determined by the amount of cash invested in “units”.

OEICs are traded in units. Each unit represents a share of the company. As the value of units is determined by the value of the underlying stock, whenever an investor buys new units or sells units the fund manager must use that cash to buy new stocks for the OEIC, or sell some stocks, to maintain a relatively steady value for the other shareholders.

OEICs do not just invest in stocks though, they can also invest in fixed interest (bonds) and properties. OEICs have mostly replaced Unit Trusts in the UK. With a Unit Trust the fund manager would manage a trust of funds to make as much profit as possible. Unit Trusts would have a bid and offer price and most of the money made by the fund manager would be in the dealing of units. OEICs have a single unit price.

Fund and Plan Managers

The companies which manage OEICs and Investment Trusts are generally known as Fund Managers or Plan Managers. There are many fund management companies in the UK, you have probably heard of many of them. Here are some of the most popular British fund managers:

Schroders Asset Managers

Schroders manage £201.4 billion of shareholder investments across their portfolio (March 2011 data). They manage a range of Investment Trusts and OEICs.

Schroders Investment Trusts

Schroder investment trusts are currently managed by some of the top rated fund managers in the UK, such as Andy Brough, Rosemary Banyard, Matthew Dobbs and Richard Buxton.

There investment trusts include the Asia Pacific Fund, Income Growth Fund, Japan Growth Fund plc, Oriental Income Fund, UK Growth Fund and UK Mid Cap Fund plc

Schroders Unit Trusts

Schroders have many unit trusts, such as the European Fund, Global Emerging Markets Funds, Income Maximisers and UK Equity Funds.

Contact Schroders

• Postal Address: Schroder Investments Limited, PO Box 1102, Chelmsford, Essex CM99 2XX
• Website: www.schroders.com
• Telephone: 0800 718 777

Jupiter Asset Management

Jupiter Asset Management are another major UK asset management house which have a range of unit trusts, investment companies and also “funds of funds” which is another way to spread risk. Their funds of funds are called the Jupiter Merlin Portfolios.

Their investment trusts include the popular Jupiter Dividend & Growth Trust PLC and Jupiter European Opportunities Trust PLC. They have a wide range of Unit Trusts also.

They also have some environmental finds, such as the Global Fund manager Fund at a glance Jupiter Ecology Fund (UT) which is managed by Charlie Thomas and the Jupiter Environmental Income Fund, managed by Chris Watt.

Contact Jupiter:

• Postal: Jupiter Customer Services Department, PO Box 10666, CHELMSFORD, CM99 2BG
• Website: www.jupiteronline.co.uk
• Telephone: 0844 620 7600

Invesco Perpetual

Invesco are leaders in UK equity income funds. Their main investment trusts are the Perpetual Income and Growth Trust plc, The Edinburgh Investment Trust plc and Invesco Income Growth Trust plc. If you wish to invest in overseas markets then the Invesco Perpetual Select Trust plc – Global Equity Share Portfolio may be of interest.

Contact Invesco

If you wish to trade in Invesco Investment Trusts contact Capita Registrars.

• Postal address: Invesco Perpetual, 30 Finsbury Square, London EC2A 1AG, United Kingdom
• Investment web portal: itinvestor.invescoperpetual.co.uk