A look at what's on the table

Figuring out which funds to invest in is never easy. Andrew Barker offers a guide

Everyone knows the warning "past performance is no guide to future performance" but, in the right context, past performance can provide valuable information when considering investment trusts. Before you use performance figures, however, it's worth looking at how they are calculated.

Performance and costs

The main thing to bear in mind with investment trusts is that they are companies. They issue shares which investors buy and sell, and they also hold other companies' shares, which make up their portfolio of underlying assets.

All shares have a bid and offer spread. The bid is the lower price, at which you can sell the shares, and the offer is a higher price, at which you can buy. Most spreads for investment trusts are below 1 per cent. When looking at performance, shares are quoted on a mid-market basis, ie the price between bid and offer.

Other costs to be taken into account includes stamp duty, a fixed charge levied on all share purchases, currently 0.5 per cent.

The costs of buying and selling vary. Stockbrokers tend to charge commission based on the value of the transaction. If you don't need advice, there are low cost, execution-only dealing services which, again, usually charge a percentage of the transaction.

The cheapest method, however, tends to be that of investment trust savings and investment schemes, where charges start as low as nil.

Working out a meaningful average based on all this is not easy. Most performance figures for investment trusts are therefore calculated on a mid-market basis, excluding costs.

Unit trusts can only be bought and sold through the managers, so the bid/offer spread can be precisely determined for each unit trust and performance calculated on an offer-to-bid basis including all charges.

Whenever the Association of Investment Trust Companies calculates average performances we use offer-to-offer figures for unit trusts. These exclude charges and are therefore comparable with mid-market figures for investment trusts.

Share price and NAV


Figures based on share price performance will obviously be of immediate interest to investors as they give a guide to the return to shareholders. Net asset value (NAV) performance, on the other hand, is the performance of the underlying portfolio that drives the share price and offers a valuable guide to the management of the underlying assets of the investment trust. The NAV is the value of the total assets held, less any liabilities, divided by the number of shares issued by the investment trust. It is therefore directly comparable with the share price.

Total Return

Performance figures are usually calculated on a total-return basis. This simply means that income as well as capital is taken into account.

The share price total-return figures shown in our tables are based on a pounds 100 investment over the period. It assumes shares were bought at the mid-market share price at the beginning and that any dividends received were reinvested to buy more shares. We assume the total investment was realised at the mid-market share price at the end of February 1998.

NAV total return is calculated in a similar way, assuming that pounds 100 was invested in the NAV and that any income earned by the investment trust was reinvested in the assets.

Comparing Like with Like

You can't compare a UK investment trust with a Far East specialist - the markets are vastly different and the recent strength of sterling will have had a big effect on the end result.

It will be more helpful if you decide on the risk profile you're prepared to accept and compare the performance of trusts within that sector: the more specialised the market, the higher the risk.

Compare the performance of the trusts within the sector on both an NAV and share price total-return basis. You want trusts that deliver consistent performance on both counts.

Andrew Barker is chairman of the Association of Investment Trust Companies.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments