Investing offshore: Getting to grips with investment trusts

Julie Brownlee, Fsp Invest, 19 May. 2015

Tags: investment trusts, what are investment trusts, closed-end funds, investing offshore, investing, continuation vote,

If you invest offshore, you can open up and diversify your investment horizons.

Not only can you invest in companies and sectors that aren’t available on the Johannesburg Stock Exchange, but there are also different types of investment vehicles.

One of these investment vehicles is investment trusts.

So what are these? And what do you need to know?

Read on to find out…

What are investment trusts?

Investment trusts are basically listed investment companies. Instead of conducting a business, an investment trust invests in stocks and other securities.

Investment trusts are also known as closed-end funds. They’re like unit trusts as they’re collective investments, but they have a listing on a stock exchange.

They’re popular in the UK and the US.

What makes investment trusts different from other listed companies?

Most companies listed on the stock market don’t have a fixed lifespan. They’ll continue to trade until they go bust or another company buys them out.

And that’s why many of the biggest companies on the JSE have been around for decades.

But investment trusts are sometimes different.

If an investment trust’s investments mature or they don’t perform well, it could be in the shareholders’ best interest to wind them up.

In an investment company’s articles of association, there’s usually a section on the holding of a shareholders’ vote to decide whether the company should continue to exist under certain circumstances. This is the continuation vote.

A continuation vote usually happens annually or after a set period of time, say five years.

If the shareholders of the investment trust vote against continuation, the company sells its assets, it returns the cash to shareholders and the company ceases trading.

So there you have it. Getting to grip with investment trusts.

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