A £17m promotional campaign is breathing new life into the unsung hero of the savings world

Most people investing in stocks and shares via an individual savings account (ISA) will probably be thinking of taking out a unit trust. Big management houses, such as Jupiter, Fidelity and Schroders may spring to mind, or low-cost index trackers such as Legal & General and Virgin. But there is another investment vehicle that you may have overlooked. Investment trusts are clamouring for our attention.

Most people investing in stocks and shares via an individual savings account (ISA) will probably be thinking of taking out a unit trust. Big management houses, such as Jupiter, Fidelity and Schroders may spring to mind, or low-cost index trackers such as Legal & General and Virgin. But there is another investment vehicle that you may have overlooked. Investment trusts are clamouring for our attention.

You may have noticed the "its" adverts plugging this lesser-known stock market investment, part of a £17.5m poster, press and television advertising blitz. Further information is available on the internet at www.itsonline.co.uk.

"Investment trusts are the easy and risk-averse way to tap into the rewards of the stock market. They are not just for the rich," says Daniel Godfrey, director general of the Association of Investment Trust Companies (AITC). "They are excellent long-term performers and offer real value for money."

If the campaign succeeds, and £17.5m is a lot of money, then a lot of small investors will be tempted to put their money in investment trusts, redressing the current balance where the vast majority of funds comes from institutional investors.

But should you be swayed? The short-term case for trusts looks attractive, with recent performance impressive. If you had invested £1,000 in the average investment trust at the start of September 1998 it would now be worth £1,338, according to figures from the AITC.

Investment trusts are currently selling at an average discount of 11 per cent. This means 89p will buy you £1 worth of shares, but dividends will still be based on the full £1 price. This sounds too good to be true.

To know how this can happen, you need to understand how investment trusts work. They are different to unit trusts, which divide a pooled fund of stocks and shares into equal units and issue them to investors. Instead, investment trusts are companies quoted on the Stock Exchange, which invest in other companies' shares.

Investment trust shares then trade on the stock market, so their price is determined by how much investors are willing to pay for them. There can be a difference between share price and the value of the trust's investments. Where the share price is higher than the value of the trust's assets, it is said to be "at a premium", and when lower it is "at a discount".

The AITC claims this discount will close as small investors buy into investment trusts, increasing demand and raising the share price. Early investors will benefit most, it claims, by getting in before the discount closes.

The process will be speeded up by a new government initiative to allow investment trust companies to repurchase their own shares, which will also narrow any discount and increase the value of their shares.

But not everybody is convinced. Martyn Page, investment researcher with financial advice network Countrywide, says there are often good reasons why something is trading at a discount. "It suggests there may be something wrong somewhere: for example, it may be that people don't want to hold investment trust shares and are selling them."

He says that investment trusts have been in trouble for many years. "Some in the industry argue that what lies behind the AITC campaign is that institutional investors want their money back. One way of doing that is to persuade the public to buy these shares so the institutions can sell theirs."

Page says it may be significant that one type of investment trust, split-capital trusts, are not being promoted in the campaign. "They don't share in the general investment trust malaise, so people don't need to be reminded to buy them."

As with unit trusts, investment trust ISAs are offered by big names such as Fidelity, Foreign & Colonial, Gartmore, Mercury and Schroder. Jupiter is pushing its new investment trust ISA with projected yields of 9 per cent, tax-free. Framlington has just launched an investment trust ISA that invests in four of its investment trusts.

Despite his reservations, Mr Page says that if you choose carefully there are some attractive investment trusts available as an ISA. He favours Alliance and Second Alliance, which offer both mini and maxi stocks and shares ISAs with a minimum monthly or lump sum investment of £50. He also likes Charter European, available as a maxi ISA with a monthly minimum of £100, or lump sum minimum of £2,000.

Bhavesh Amlani, business development manager with advisers Rickman Tooze, says financial advisers often don't mention investment trusts to clients as they don't earn any commission. Advisers who charge clients a fee instead of earning commission are more likely to sell them. "The situation is changing as more investment trusts are paying comm- ission to intermediaries. This means that IFAs, who traditionally use unit trusts, may start recommending investment trusts."

The danger is that this will make investment trusts more expensive. One of their charms is that they have much lower charges than unit trusts - often no initial charges and annual management fees of just 0.5 per cent. Unit trusts can have initial charges of more than 5 per cent with annual charges of around 1.5 per cent. But if investment trusts start paying commission, charges will rise to cover the cost, so check what charges you are being asked to pay.

Mr Amlani says with markets currently looking nervy this may not be the best time to invest in investment trusts. "A more volatile investment like an investment trust could make a volatile situation even shakier," he adds.

Once the potentially destabilising millennium period has passed, it might be worth taking a chance with an investment trust ISA, he says, particularly if you are investing over the longer term when volatility is less damaging. "We like the Fleming Claverhouse investment trust, which is a good general fund with good past performance, though it's weakened lately. Henderson Investors' Lowland trust has been consistently good," he says.

"The Enhanced Zero Trust managed by Aberdeen Asset Managers is interesting as a wild card. It has not been running for long, but if Aberdeen makes the right bets, performance could be very good."

* Web contacts: www.aitc.co. uk (Association of Investment Trust Companies); www.itsonline.co. uk; www.trustnet.co.uk