Investment trusts rarely advertise, and therefore waste far less of your management fee. They also do not pay commission to financial advisors, so, with the exception of truly independent advisors, who are not paid by commission, or who share their commission with the customer, they are unlikely to be recommended. The other reason ITs are often shunned by retail investors is that they are more complicated and can be riskier.

Discount

Most investment trusts trade at a discount to the value of the underlying investment (the net asset value, or NAV of the share will be higher than the share price) so you get more shares for your money and more dividend, but the discount still applies when you sell too. The discount generally shrinks during good times because there are usually a fixed number of shares, so the price goes up disproportionately with demand. This magnifies the market movements and makes them riskier during a downturn. Some very popular investment trusts may even trade at a premium during a bull market. When choosing an investment you need to take the discount into consideration, not just its absolute value, but also whether it is higher or lower than usual. This adds complication. It is important to monitor the variation of the NAV when comparing performance with other investment, because this is the measure of the underlying performance, rather than just the value.

Another complication is the different types of share available for some companies. Some investment trusts are split capital investment trusts which are covered in my other review "Almost crash-proof") and a misselling scandal a few years ago, specifically for the zero-dividend preference share variety of split caused all investment trusts to be tarred with the same brush, causing more mistrust. Conventional investment trust are different, and easier to understand that these more obscure investments.

Investment trusts are companies and therefore have to have an annual general meeting, to which you will be invited if you own shares, or you can vote using the postal vote form sent with the annual report. This, for me makes them more interesting, although I have not yet attended a meeting.

Disadvantages

If you want to buy an investment trust through a broker they will charge you a fee, of typically about £10 and, as they are actually a share in a company, you will also need to pay 0.5% stamp duty. Neither of these fees are payable when buying a UT, although you do have the big, typically 5%, and upfront fee. If, however you buy direct from the management company (e.g. Fidelity, Foreign and Colonial etc.) they will have low cost ISA and regular saver options which may even be free apart from the stamp-duty. There are also now money supermarkets and discount brokers (e.g. Hargreaves Lansdown) who will give back most of the 5% upfront fee and some of the annual management fee for unit trusts, reducing the advantage of investment trusts. Also in the last few years and new breed of investment has arrived, called the Exchange Traded Fund (ETF). This is similar to a UT excepts its price is quoted continuously through the trading day, like an IT rather than just once for a UT and there is no real manager, because they simply track an index using computers, therefore have very low annual fee and small bid/offer spread. I use these for short term trading and ITs or other shares for longer term trading.

Conclusion

So, would I recommend investing in investment trusts? Yes, if you are thinking of investing in an actively managed equity ISA, pension or just through a stock-broker, these unpopular investments will generally give a better performance than unit-trust or OEICs (open ended investment companies, effectively the same as a unit trust) However the difference is less clear-cut than it was a decade ago, with the advent of investment supermarkets, discount brokers and ETFs. If you think the markets will go up from here, the investment trust discount will also probably shrink causing an even better return.