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Best use of resources?

Answered by Angus Rigby
29 October 2007 [2 comments]

Q: 

Can you tell me whether you think shareholders might be better off if the millions of pounds spent by investment trusts such as Foreign & Colonial and Bankers on buying back their own shares in an effort to narrow the discount were used instead to increase dividends?

A: 

Can you tell me whether you think shareholders might be better off if the millions of pounds spent by investment trusts such as Foreign & Colonial and Bankers on buying back their own shares in an effort to narrow the discount were used instead to increase dividends?

Additionally, perhaps allowing long-term shareholders to sell at par might offset the effects of a wide discount.
Jeffrey Simon, via email

Angus Rigby replies:
An investment trust is a company whose business is holding shares in other companies. They are similar to unit trusts in that they are collective investments, but they are also stock market-quoted companies with a fixed number of shares in issue. As a result, the price of an investment trust share will depend on both the performance of its investments and the demand for the trust’s shares themselves.

Investment trusts often trade at a discount to the value of their assets, and if demand for the shares falls, this discount will widen. When this happens, investment trusts can buy back their own shares to reduce the supply and therefore narrow the discount.

As Mr Simon says, increasing dividend payments rather than initiating a share buy-back could, arguably, narrow the discount more effectively by making the shares more attractive. However, investment trusts (a Victorian invention) have a well-established history of increasing or decreasing the number of shares in issue to match investor demand, and this custom is unlikely to change.

Angus Rigby is chief executive officer at TD Waterhouse

User comments by at Tuesday 13th November 2007

User comments by at Wednesday 14th November 2007

 
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Disappearing trust 

15 August 2008 [0 comments]

Q: 

I wish to draw your attention to the ‘Resources Investment Trust’, which is listed in What Investment in the sector entitled ‘Specialist: Liquidity’.  In fact, this trust should be in the sector entitled ‘Specialist: Commodities & Natural Resources.
The trust was correctly listed in ‘Specialist: Commodities & Natural Resources’ up to and including August 2007, issue 293, but in the next issue, September 2007, it had been moved to ‘Specialist: Liquidity’.
Also, the performance figures in issue 302 of What Investment, May 2008, for the Resources Investment Trust appear to be somewhat excessive – far outperforming the Merrill Lynch World Mining Trust. Are you certain that these figures are accurate? The reason I query the figures is because I have seen performance figures for these trusts in
other publications where the Resources Investment Trust mostly underperforms the
Merrill Lynch World Mining Trust.
Derek Crawford
Via email

 
 

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