funduffer wrote:Thanks for the responses on investment trusts v investment companies. I get it now. The former invest in shares, the latter in physical assets, in the case of UKW, wind turbines.
Sorry, but no, you don't seem to get it about the difference between investment trusts and investment companies. Greencoat UK Wind PLC (UKW) is an investment trust. Specifically, if you download its 2020 annual report (*) and turn to page 31, you will find the following:
Investment Trust Status
The Company has been approved as an investment
trust under sections 1158 and 1159 of the Corporation
Taxes Act 2010. As an investment trust, the Company
is required to meet relevant eligibility conditions and
ongoing requirements. In particular, the Company
must not retain more than 15 per cent of its eligible
investment income. The Company has conducted and
monitored its affairs so as to enable it to comply with
these requirements.
So UKW doesn't match up to your idea that investment trusts invest in shares and investment companies invest in physical assets...
What this board's guidance cares about is that the companies a HYP invests in should not be companies whose main business is managing investments in quoted shares for the company's own benefit (**). Their main business can be something other than managing investments, such as running supermarkets, making tobacco products, providing bank accounts, developing and manufacturing pharmaceuticals, or many other things: those companies are all neither investment companies nor investment trusts. Or their main business can be managing investments for the company's own benefit, and that's also OK by the guidelines, as long as the investments are not largely quoted shares: they can be all sorts of things, such as real estate, infrastructure projects, art, stamps, gold, even unquoted shares - just not quoted shares (though in practice, most of the possibilities aren't going to generate enough earnings to fuel the dividends a HYPer is looking for, so only real estate and infrastructure projects come up at all often as HYP candidates). As far as I am aware, all of those companies might in principle be either investment companies or investment trusts - it's a matter of the company's legal status (as indicated by the "
under sections 1158 and 1159 of the Corporation Taxes Act 2010" part of the above quote) - but which of the two a company is simply isn't something the guidelines care about. So the legal distinction between an investment company and an investment trust quite simply isn't something one needs to know as a HYPer wanting to comply with the guidelines when posting to this board - which incidentally is something I'm heartily glad of, because I don't know that legal distinction! All one needs to know is whether the company's main business is managing investments for its own benefit, and if so, whether those investments are largely quoted shares.
In short, the thing you need to 'get' about this is not what the difference between investment companies and investment trusts is, but that you
don't need to know what that difference is.
(*) Which is at
https://www.greencoat-ukwind.com/~/medi ... 0Final.pdf, though you may well have to find your way through some disclaimers to get to the actual report.
(**) Asset managers who charge management fees to manage other people's or organisations' portfolios of quoted shares for them are different (they get their management fees whether the portfolios they're managing go up or down in value) and are fine by the guidelines.
Gengulphus