Investment trusts made simple
An investment trust allows individuals to purchase groups of assets (like equities, bonds or other financial instruments) without having to manage each one independently. They are particularly appealing to those seeking exposure to fast-growing markets and smaller companies. In the UK, investment trusts are listed on the London Stock Exchange, which means that investors can buy and sell shares easily.
How investment trusts operate
The primary objective of an investment trust is to grow an investor’s money. To do this, the trust pools money from individual investors to buy assets that the investment manager believes will appreciate in value. Unlike mutual funds, investment trusts have a fixed number of shares, which can result in the share price trading above or below the actual value of its underlying holdings.
Spotlight on the Scottish Oriental Smaller Companies Trust
The Scottish Oriental Smaller Companies Trust plc is committed to delivering long-term growth for UK investors. With more than 30 years of history, the Trust has invested in smaller companies across the Asia region which can often present significant growth opportunities for long-term investors.
Using an investment approach that is rooted in rigorous research and meticulous stock selection, Scottish Oriental looks for companies with robust financials, competent leadership and sustainable competitive advantages. By identifying and investing in these high-potential businesses early, the Trust aims to grow the money entrusted to it by its investors.
Advantages of investment trusts
Diversification helps to reduce risk
Investing in Scottish Oriental provides access to a wide array of companies across different sectors and geographies – an approach known as diversification. This helps to reduce the risk of losing money if one company performs badly and is a key reason why investment trusts are favoured by individual investors. For example, the Trust’s holdings may include technology firms in Taiwan, consumer brands in India, and financial institutions in Indonesia, offering balanced exposure to diverse economic drivers.
Diversification also shields investors from country-specific risks such as political instability or changes in currency values. By maintaining a broad asset base, the trust can navigate market volatility while pursuing a long-term growth strategy.
Structural benefits of closed-ended funds
As a closed-ended fund, the Scottish Oriental Smaller Companies Trust plc has a fixed number of shares, allowing the manager to invest in smaller or less liquid companies without the pressure of meeting daily withdrawals. This structure supports a stable investment strategy and enables the manager to have a long-term investment time horizon – an important trait that allows the manager to explore niche investment opportunities and retain holdings in companies that require time to mature.
Long-term growth and gearing
Investment trusts like Scottish Oriental Smaller Companies Trust plc can borrow money (called “gearing”) to amplify returns if the manager believes that there are attractive investment opportunities to take advantage of. This strategy is particularly effective in Asia, where growth prospects are abundant. Gearing increases exposure to the underlying assets, which can enhance returns during rising markets.
However, gearing also introduces additional risk. In declining markets, losses may be magnified. The Trust uses gearing carefully, guided by comprehensive risk assessments and company analysis to safeguard investor money.
Long history of investing in Asia
The Trust is managed by a team of seasoned investment professionals, based in Asia, who brings deep regional insight and extensive investment experience in the region. With an active, research-driven approach, the manager looks for the best companies in Asia to invest in, making the Scottish Oriental Smaller Companies Trust plc a top choice for those seeking Asia-focused investment opportunities.
As part of the research process, the investment manager engages with company executives, scrutinises financial statements and monitors industry trends to identify superior investment prospects.
This hands-on management style ensures agility in responding to market developments and alignment with investor objectives and risk tolerance.
Accessible investment options for UK investors
Listed on the London Stock Exchange, the Trust’s shares can be purchased via online brokers, financial advisers, or multiple investment platforms, making it easy for UK investors to participate in the growth of Asian smaller companies. Whether you’re utilising your ISA allowance or adding to your existing investments, the Scottish Oriental Investment Trust can offer a convenient entry point to these exciting markets.
Understanding the risks
While investment trusts offer numerous benefits, it’s essential to consider the associated risks:
- Share prices may fluctuate, and investors could receive less than their initial investment.
- Market sentiment can influence share prices, leading to volatility.
- Gearing can exacerbate losses during downturns.
- Each trust has a unique strategy and risk profile; reviewing the prospectus and seeking independent financial advice is recommended.
Investing in emerging markets entails specific risks, including regulatory changes, economic instability, and limited transparency. The Scottish Oriental Smaller Companies Trust manages these risks through diligent investment selection and continuous monitoring.
Risk factors
Capital at risk. The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
Important Information
This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision.
This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.
Net Asset Value (NAV) performance is not the same as share price performance and shareholders may realise returns that are lower or higher than NAV performance.
This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this information.
References to "we" or "us" are references to First Sentier Group. In the UK, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743.
Scottish Oriental Smaller Companies Trust plc ("Company") is an investment trust, incorporated in Scotland with registered number SC0156108, whose shares have been admitted to the Official List of the London Stock Exchange plc. The Company is an alternative investment fund and has appointed First Sentier Investors (UK) Funds Limited as the alternative investment fund manager for the Company. Further information is available from Client Services, First Sentier Group, Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday or by visiting www.scottishoriental.com. Telephone calls with First Sentier Group may be recorded.
First Sentier Group entities referred to in this document are part of First Sentier Group, a member of MUFG, a global financial group. First Sentier Group includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.
© First Sentier Group
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