- We look at the big shifts in gearing among equity trusts
- Several names are putting debt to greater use
The belief that investment trusts outperform open-ended funds in the long run relates in no small part to the use of gearing. Using debt to take on extra market exposure allows trusts to get even more out of rising prices, boosting returns significantly over longer periods.
Of course, things aren’t quite that simple. Gearing amplifies losses as much as it does gains, providing one explanation for why investment trust shares can prove especially volatile in tough markets. The choice to notably increase or reduce gearing can have a major bearing on returns, making it vital for shareholders to spot any big moves.