Legal Definitions - investment trust

An investment trust (often referred to as an investment company) is a financial entity that collects money from numerous individual and institutional investors. This pooled capital is then professionally managed and invested in a diversified portfolio of assets, such as stocks, bonds, real estate, or other securities. Investors purchase shares in the investment trust, and the value of these shares fluctuates with the performance of the underlying investments. This structure allows individual investors to gain access to a broad range of assets and professional management that might otherwise be inaccessible or too costly for them to achieve on their own.

• Example 1: Retirement Savings

  Maria is saving for her retirement and wants to invest her monthly contributions, but she doesn't have the time or specialized knowledge to research and select individual stocks and bonds. Instead, she chooses to invest in an investment trust that focuses on a balanced portfolio of global equities and fixed-income securities. Her money is pooled with that of thousands of other investors, professionally managed by the trust's fund managers, and diversified across many different companies and government bonds worldwide. This allows Maria to participate in the market's growth and benefit from expert management without needing to pick individual investments herself.

• Example 2: Sector-Specific Investment

  David believes strongly in the future of renewable energy technology but finds it challenging to identify promising individual companies in this rapidly evolving sector. To gain exposure, he invests in an investment trust specifically dedicated to the renewable energy industry. This trust pools his money with other investors' funds and uses it to buy shares in a variety of renewable energy companies, from solar panel manufacturers to wind farm operators and battery storage innovators. This way, David gains diversified exposure to the sector, benefiting from the expertise of the trust's managers who specialize in evaluating these complex businesses, rather than risking all his capital on a single company.

• Example 3: Managing Charitable Funds

  The board of a small community foundation needs to invest its endowment funds responsibly to generate income for its programs while preserving the principal for future generations. The foundation lacks in-house investment staff or expertise. To meet their fiduciary duties, the board decides to invest a significant portion of its endowment into an investment trust focused on long-term capital appreciation and income generation. The trust's professional managers handle the day-to-day investment decisions, diversifying the foundation's capital across various asset classes like large-cap stocks, government bonds, and some real estate. This ensures the foundation's funds are prudently managed, diversified, and have the potential to grow over time, aligning with their mission without requiring them to hire their own investment team.