There are lots of factors to consider when investing in a fund, but it’s important not to overlook the way it is structured. An investment trust operates in a completely different manner to an open-ended fund such as an OEIC or unit trust and there are times when this can have a significant bearing on the performance.
With an open-ended investment company (OEIC), shares are created or cancelled every time that an investor puts money in or takes it out. They are open-ended because the number of shares can be unlimited, although the price will always reflect the net asset value (NAV) of the underlying assets.
Unit trusts are also open-ended, although the legal structure is more complicated with the trust divided into units that rise or fall in value in line with the NAV of the portfolio. Units are created or cancelled every time someone invests or disinvests, but unlike the shares of an OEIC, the units don’t give you the ownership of the fund, they only entitle you to participate in the assets.
The investments held by a unit trust are protected by an independent trustee and are managed by a fund manager. An OEIC is slightly different as the holdings are safeguarded by an independent depository, while the investment manager is an authorised corporate director.