The gyrations of the stock market over recent months have demonstrated how beneficial it is to have some investments that don't have their prospects wedded to those of the major indices. That's where investment trusts come in. The investment trust sector is full of funds holding weird and sometimes wonderful assets that dance to their own investment tune and are otherwise hard to get exposure to through the market.
For example, how else can you make money financing no-win/no-fee lawsuits - Burford Capital offers such an opportunity - or generate an income stream from aircraft leasing (Doric Nimrod Air1 and 2)? Whether you want to invest in trees (Cambium Global Timberland and Phaunos Timber), distressed debt (NB Distressed Debt), alternative energy (Impax Environmental and BlackRock New Energy to name but two), mortgages (Real Estate Credit Investments and Duet Real Estate Finance), or even luxury yacht moorings (Camper & Nicholsons Marina), the investment trust sector has something to suit. Meanwhile, so-called single-country funds offer exposure to a number of potentially exciting regions, which are well off the beaten investment track. Examples include the recently launched Qatar Investment Fund and Aim-traded Origo Partners, which invests in private Chinese companies.
The structure of investment trusts is a key reason why they are so often chosen as a vehicle through which to offer investors exposure to exotic assets. Often these assets are illiquid, which means they take a long time to find and buy, and can only be sold quickly if they are sold well below the market price. Whereas an open-ended fund, such as a unit trust, requires a manager to buy and sell assets to match the fluctuation in demand for the fund's units, investment trusts are closed-ended, which allows the fund manager to get on with the business at hand - managing the portfolio to generate the highest possible return. The popularity, or lack of it, of a trust is reflected in the premium or discount the shares trade at compared with underlying net asset value (NAV). Investment trusts also allow managers to borrow money to invest with, which has the effect of amplifying returns and can be pivotal to some of the more exotic trading strategies.