How investors can protect themselves when liquidity dries up

ITs

Nick Greenwood of MAM Funds explains the benefits and risks of investing in deeply discounted investment trusts.

Given that investment trusts have a fixed number of shares in issue, investors wishing to invest or redeem must do this by buying or selling in the second-hand market. The principal advantage of this type of vehicle over open-ended funds is it protects the manager from inflows and outflows to and from the portfolio, a crucial advantage in a world were liquidity has progressively become more restricted. Investing away from easily tradeable blue chips using open-ended funds is fraught with hidden risks. There is a potentially fatal mismatch between unitholders right to redeem their enti...