investment trust
Investment Trust: a company listed on the stock exchange that pools money from many investors to buy shares in other companies on their behalf.
In plain English
Remember the woman at the market who sells akara but also buys bags of beans in bulk for six other sellers because she gets a better price that way, and everyone pays her a small fee for the trouble. An investment trust runs on the same spirit, except the goods being bought are shares, bonds and property, and the woman is now a company listed on the stock exchange.
When you put money into an investment trust, you are not buying beans or akara. You are buying a share in a company whose only job is to hold a collection of investments picked by professional managers. Your money joins other people's money, and together it becomes big enough to buy things that would be hard to buy alone, like a slice of forty different companies across Lagos, London and beyond.
This matters for a Nigerian saving for a child's university fees, or someone in London sending a little extra home every month, hoping to grow it rather than let it sit idle. Instead of trying to pick individual shares on the Nigerian Exchange or the London Stock Exchange yourself, guessing which company will do well, you let the trust's managers do that guessing, spread across many companies, so one bad pick does not sink you.
An investment trust is itself a public company with its own share price, which can trade above or below the actual value of what it owns, called its net asset value. That gap is part of what makes trusts different from ordinary mutual funds, and worth understanding before you buy in.
There is a cost for this convenience, usually a small annual management fee, and the share price can still fall if the wider market falls. But for many people, paying a professional to spread their risk across a whole basket of companies is far less frightening than trying to become a stock picking expert overnight.
Adaeze in Manchester puts £100 a month into a UK investment trust that holds shares in over sixty companies worldwide. She never has to choose which company to back herself, the trust's managers do that, and her £100 buys a tiny slice of all sixty at once.
Questions people ask
Is an investment trust the same as a mutual fund?
No. An investment trust is a listed company with a fixed number of shares that trade on the stock exchange like any other stock, so its price can move away from the value of what it holds. A mutual fund usually issues new units on demand at a price tied directly to the value of its holdings.
Can a Nigerian based at home buy an investment trust listed in London?
Yes, though you would typically need a stockbroking account that gives access to foreign exchanges, or an international brokerage platform, and you should check any currency conversion costs and tax implications before you commit money.
What happens if the investment trust's share price falls below the value of what it owns?
This is called trading at a discount, and it can actually be a buying opportunity for patient investors, since you are paying less than the underlying assets are worth. It does not mean the trust has failed, just that the market's mood towards it has cooled for now.
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