As discounts rose to 40 per cent, you did not want to be in investment

I HAVE a soft spot for investment trusts. In the 1960s I worked for a very progressive stockbrokers, now part of the mighty Dresdner Bank. They devised what must have been one of the earliest portfolio management services for small clients, using investment trusts' shares.

In the early 1970s I was put in charge of running it. This was a time when discounts rose from 10 per cent to 40 per cent. You did not want to be in the investment business then - as investor or manager.

Investment trusts are different from unit trusts because the price at which shares change hands is determined by the market rather than just by the value of underlying assets.

Investment trust shares can stand at a discount - or a premium - to the worth of the underlying portfolio. Discounts are more common. When a discount widens by 30 per cent, it is like having a third wiped off the value of your shareholding.

Much water has flowed under the bridge and investment trusts have regained some, but not all, of their poise. Unit trusts have become the UK's favourite retail collective investment. Behind the rehabilitation of investment trusts has been the shaking up of investment management houses, a more focused approach by investment trust companies, the introduction of innovative capital structures and the setting of final redemption dates for many trusts.

But discounts did widen again in the 1990s - at least until the beginning of this year. Since then trust companies have been boosted by both the changes that have allowed them to repurchase their own shares and a multi- million pound advertising campaign to be launched this autumn.

You can use investment trusts to provide specialist exposure to a market, such as North America, or simply to give general investment coverage. Take Alliance Trust as an example. One of the largest trusts (it is worth close to pounds 2bn), it has also one of the lowest management charges and offers attractive savings schemes for those with limited resources. It will never be the best-performing trust - it is too broadly spread - but history shows that it has delivered consistent performance.

I mentioned smaller company trusts last week. Here you have to be a little more careful. We rather favour Fleming Mercantile. It can actually invest in medium-sized companies too - probably no bad thing, given liquidity problems at the smaller end of the market.

Indeed, it has suffered from overweighting smaller companies, although this will have done it no harm this year.

Industry themes are gaining popularity. Henderson Technology is run by Brian Ashford Russell, an experienced and cautious investor. There is more interest in this market and much potential. These are not the cheapest in terms of discount, although Alliance does offer the opportunity of buying shares at 13 per cent less than asset value, while Fleming Mercantile has a near 20 per cent discount. But Henderson Technology stands at a mere 3 per cent below its notional break-up value.

Brian Tora is chairman of the Greig Middleton investment strategy committee

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