Investment trusts would not still be around if they could not demonstrate their ability to perform over the long term. But, unlike unit trusts, there is more than one way to measure performance.
Most investment trust managers like to look at the growth in net asset value per share. This is the value of the total basket of investments divided by a fixed number of shares in issue, after allowing for any gearing. The latter measures any money borrowed by the fund for investment.
The managers usually compare this net asset value against a benchmark, which might be the FTSE 100 share index or some other recognised index.
Today, investment trusts are split into 20 different sectors, many with their own indices. These vary from general international, capital growth and income growth to a variety of different specialisations, including international funds, either in specific markets or sectors, property, smaller companies, development and venture capital funds which invest in private companies.
Some of these sectors have just one benchmark and some have several. For example, the smaller companies sector includes trusts which specialise in the USA and Europe as well as those just investing in UK companies. "Comparing a US smaller companies specialist against a UK benchmark would be like comparing apples and pears," says Ernest Fenton, of the Association of Investment Trust Companies.
Private investors measure how well their investment trusts are doing by looking at the share prices. This is still the easiest way to compare performance. The best and worst performers tend to be the higher risk specialist funds. The more general funds tend to be midway.
Even so, with their lower charges, they do tend to do slightly better than the average unit trust over the longer term. In international equity growth, for example, pounds 1,000 invested in the average unit trust in the sector three years ago would now be worth just under pounds 1,400. If the same amount had been put into the average investment trust in the sector, it would now be worth almost pounds 1,500.Reuse content