Funds of investment trusts

An investment trust is a company whose business is investment in other companies. In some respects, investment trusts are similar to OEICs or unit trusts in that a single holding offers you a spread of underlying investments. Unlike OEICs or unit trusts, however, investment trusts are listed on the stock market and their shares are usually bought and sold via stockbrokers.

A fund of investment trusts is a unit trust or OEIC fund that invests in investment trusts. It is therefore similar in some respects to a fund of funds.

Investment trusts are a specialist area of the stock market. While they have some similarities with unit trusts and OEICs, the way in which investment trusts operate can mean that they are higher risk investments.

A fund of investment trusts provides a means of managing that risk. If you choose a fund of investment trusts:

• You benefit from active management. This means a professional fund manager takes the difficult decisions about which sectors and which investment trusts to choose
• Your investment is broadly diversified because each selected investment trust will itself have a spread of investments
• You save on the paperwork and administration involved in owning and managing investment trust holdings
• The structure could save you capital gains tax.

There are many differences between investment trusts or OEICs and unit trusts. These include:

• The number of shares issued by an investment trust is generally fixed (closed-ended) whereas OEICs and unit trusts can expand and contract their capital according to demand (open-ended)
• The price of investment trust shares is determined by the stock market and is not directly related to the value of the underlying investments. For OEICs and unit trusts, the Financial Services Authority regulations require that prices are directly related to the value of the underlying portfolios
• There are fewer restrictions on the operations of an investment trust. For example, many investment trusts borrow (or "gear") to increase the size of their portfolios. The investment powers of OEICs and unit trusts are subject to strict rules set by the Financial Services Authority
• Investment trusts can have complex structures that give different shareholders different entitlements to income and/or capital. The same structures are not permitted for OEICs and unit trusts.

To learn more about New Star's funds of investment trusts, we recommend that you talk to a financial adviser. Search for your nearest independent financial adviser (IFA). The following are New Star's funds of investment trusts: Diversified Absolute Return Fund, Global Strategic Capital Unit Trust, UK Strategic Capital Unit Trust and UK Strategic Income Unit Trust.