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Institutional Investments - Essay Example
Finance & Accounting
Pages 8 (2008 words)
Why do Investment Trusts trade at a Discount? This article is aimed at focusing the reasons behind the trading of investment trust shares at a discount. At the beginning of this article, investment trusts are explained along with their differences with the investment companies…
Last part of this article would highlight some of the tactics devised in order to control discount trading of investment trust. Summary at the end of this article would conclude this article. Investment Trusts Investment trusts are those types of companies, which are provided the domicile of United Kingdom such that they are listed in the London Stock Exchange. They mainly invest in the equities and securities of the companies across the world, which are listed in different stock exchanges (Redhead, 2008). These investment trusts are run by the panel of the independent directors who take care of the affairs of the investment trusts. Investment trusts are somehow different with the investment companies such that investment companies are domiciled outside the jurisdiction of UK such as Jersey or Guernsey (Redhead, 2008). Pricing of Investment Trusts The pricing of investment trusts are made based on a conceptual term named as Net Asset Value or NAV. Net asset value is the market value of all the investments held by the investment companies. Therefore, the market value of any investment trust is actually the NAV of the investments (Levy and Post, 2005). In case if the market value of the shares issued by the investment trust exceeds NAV, then this concept refers as the shares of the investment trusts are trading at a premium. ...
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