Investment trusts lead the pack

INVESTMENT trusts have consistently outperformed most other forms of equity-based savings schemes, including unit trusts, over the past 10 years, according to a report by City securities house S G Warburg.

The report's authors, Roger Adams and Vanessa Yeo, say this is because: 'Investment trust managers can take long- term decisions even to the extent of investing in unmarketable, even unlisted securities. 'This is not an option for the manager of a unit trust, who needs liquidity.'

For instance, during the October 1987 crash, investment trusts were not forced to sell shares to meet panic-driven redemptions. Their value dropped, but they were able to borrow money to buy the same shares, at low prices, which unit trusts were selling.

Figures by Money Management, a specialist financial magazine, appear to bear their claims out. A pounds 1,000 investment in an average British income growth investment trust 10 years ago would have have grown to pounds 6,620, with net dividend income reinvested, by the end of December 1993.

By comparison, pounds 1,000 placed in an average UK income growth unit trust would now be worth about pounds 4,868 on an offer-to-bid basis.

The same sum in a high-interest building society account would have netted pounds 2,239.

Unit trusts do not always come off second-best. An average UK general investment trust is worth pounds 4,031 while the same unit trust grew to pounds 4,243.

But the S G Warburg report also explains that there are risks to investment trusts. Traditionally, the market value of an investment trust share has been less than the value of the actual shares in its portfolio.

In the past 10 years, however, the discount on an average investment trust has dropped from more than 25 to barely 5 per cent. Should the gap widen again, the value of trusts could drop significantly.

SG Warburg Investment Trusts, Private Investor Guide 1994. Tel: 071-606 1066.