A number of misunderstandings have put advisers off the investment trust space, but excluding them from clients' portfolios is a big mistake, says Paul Taylor, managing director at McCarthy Taylor.
Investment trusts are perceived by some advisers as higher risk in comparison with their equivalent open- ended alternatives, such as unit trusts and OEICs. Part of this comes down to the fact trusts can borrow money – known as gearing – although this ability can help deliver superior performance. When a manager perceives value in the market they can borrow to purchase additional shares and repay when the shares have increased in value, with any surplus remaining within the investment trust as gains. It is worth noting, however, that this can also work the other way when markets fall, re...
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