The investors who follow the latest line will often find themselves part of a stampede that buys at the top of the market only to see investments shrink in value.
There are City professionals who say that any sign that unit trust sales are soaring is the time to turn equity investments into cash and sit out the coming slump.
Unit trust companies just mop up any extra demand by creating new units. The price of a unit trust is see-through. It shows the value of the investment held by the trust.
But investment trusts are different. They are quoted companies in their own right with a limited number of shares. When people decide that buying is a good idea the surge of demand will push up investment trust share prices - and when they decide to quit, prices fall.
Investment trusts, too, are greatly influenced by the value of their holdings, but the demand/supply factor creates an added level of uncertainty.
The annual Credit Lyonnais Laing report on investment trusts published on Friday rings a warning bell. It says that more and more investors follow the herd, with fewer willing to take the contrary view and alight upon investments or sectors that have been out of favour but may now be ripe for recovery.
Timing is all. Many investors have felt, for instance, that Japan has been ready for revival for some time, but still their investment refuses to come good.
Another worry is that the success of management companies in creating a steady flow of demand for their trust by setting up regular savings schemes has pushed prices up, so that the shares trade above the level that solely reflects the value of the investments. While investment trust shares trade at a discount to assets there is always a hope that the discount will narrow. But once it is at a premium the probability seems to tilt towards the share price sinking back to a discount rather than an increase in the premium.
In reality the number of shares is not fixed, because the management companies can stage a rights issue and produce more shares out of the hat to capitalise on the trust's popularity. Then heat is drained from the share price and the management has a wider base from which to draw its fees.
Investment trust charges have begun to creep up, while unit trusts - especially when wrapped up in a tax-protecting PEP - have become sensitive to charges and begun to shave the initial charge (though investors should still keep a beady eye on the insidious annual charge).
So investment trusts are no longer the hidden treasures that only those with a bit of an inside track get to know about. They still offer expert management at a fair price, but don't assume they are all always the best route.
THREE CHEERS for the Inland Revenue, which really does seem to be making serious efforts to make paying tax not quite so awful.
Last week it proposed to extend the free advisory service it runs to give formal judgements on tax matters.
It will not quite stretch to giving advice before the event, but anything that makes the rules a bit easier to understand and interpret must be good news.Reuse content