Investment Trusts complex?

Investment trusts are to be classified as “complex instruments” – from January 2017 investors who want to buy an investment trust will have to complete a questionnaire, the same type of questionnaire that people complete if they wish to get involved with unregulated funds, hedge funds and warrants.

This requirement arises from the European Markets Instruments Directive II (Mifid II).

Jeff Prestridge, an excellent financial journalist, made some passionate points in favour of investment trusts in a recent article in the Mail on Sunday. However, Jeff also argued that investment trusts are not complex but “a little different from other collective investments”, also stating that “they are more robust than investment funds”.

Although we share Jeff’s passion for investment trusts, we always make the point that investment trusts are complex. In addition we do not believe that using “robust” in terms of investment trusts is not a term we would use.

Unit trusts and investment trusts could not be more different.

Unit trusts are governed by trust deed which includes restrictions on amounts that can be invested in a single share. Also, the requirement is for the unit trust managers to redeem unit holders on demand. No such requirements hold back investment trust managers. Indeed I can think of one investment trust that has 75% of its investment holdings in a single share!

Unit trusts are a more robust proposition for investors.

Of course, the past performance of investment trusts makes them an exhilarating ride; we believe that most investors would be wise to seek the guidance of an investment trust specialist before investing in this market.

To summarise: do not get carried away by the past performance of some investment trusts; the performance, complexity and risks should be expressed in equal measure.


Ray Best is a resilient Financial Planner with a unique approach to investment planning, his work ethic has propelled him from humble beginnings to be voted as a top UK Financial Planner by Vouched For (as published in the Sunday Times). These days he works with families with large investment portfolios or big inheritance tax liabilities, the first step, is to book a Discovery Meeting HERE.

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