Finance
Fixed Trusts.
THE spreading of investment risks over a larger number of securities than can conveniently be done by the investor of moderate means has long been possible through the medium of the established Investment Trust companies. These, originating in Scotland, .were viewed at first with a certain amount of suspicion, for they represented the handing over of the investor's capital to the control of a body of directors to invest very much as they pleased. The investor directly trusts his money to others to invest on his behalf; and it is a tribute to the honesty of pufpose, as well as to the knowledge and fore.- sight, of the directors of so many of the.established Trust companies that they have as a rule done very much better for the investor than he could have done for himself.
ORIGIN OF TRUSTS.
Investment Trust companies have been an established feature of the British financial market since the 'eighties, but it was not until the boom years of 1928-29 that •Wall Street attempted to copy them. Even then the desire to emulate the British Trust in the United States arose, it is to be feared, not so much from a desire to conserve the savings of thousands of small investors but rather to provide the necessary funds for Stock Exchange operations, which, owing to the expansion of the capital of American companies, had outgrown the manipulative powers previously • within the scope of private fortunes. Then Wall Street interests conceived the idea of the Fixed Trust—that is, a Trust where the investment items were not subject to change at the discretion of the directorate, for the latter feature was viewed by American invest- ment opinion with justifiable suspicion. Quite lately the Fixed Trust idea has come back to this country and in the last year a number of them have been formed.
SPREADING RISKS.
As the name implies, the Fixed Trust is designed simply as a means whereby the investor may spread a modest amount of capital over a number of specified stocks or shares not subject to alteration at the will of the managers. In certain of the Trusts, however, the constitution has allowed for some latitude in this respect. The Fixed Trusts are not companies in the ordinary sense, but are actual trusteeships, the securities being held on behalf of the investors by the Trustee Department of a bank or insurance company which collects the income and dis- tributes it to the Certificate holders. It is this trustee- ship, indeed, which constitutes the essential feature of beprotection against misfeasance, and the investor should on his guard against any Fixed Trust where this safe- guard is not present.
The success which has attended the promotion of these . Fixed Trusts is not a little remarkable, for obviously the investor pays rather more for the Trust Certificate than he would if he were to spread his capital in identically •' the same proportions over the securities of any of the Trusts. It would seem, however, that the idea appeals • even to larger investors, and some of the Trusts have received quite substantial sums from. individuals to whom the idea of an aggregate investment over a number of items without the bother of their individual selection is attractive.
The price of the Sub-Certificate represents the value of the underlying securities, and the expenses of buying them, plus what is known as a " service " charge usually fixed at from Is. to is. 6d. per Sub-Certificate designed to cover the whole of the expenses of the Trust during the period of its life, generally fixed at twenty years. The small investor is evidently quite willing to pay what in the case of the investment of a big sum would appear to be a somewhat disproportionate charge, and even so there is no reason to think that he does not get fair value; for his money, just as in industrial life-assurance the expenses may look rather high because of the inevitable' cost of collecting premiums in pence per week.
FIXED TRUST CRITICISMS.
The Fixed Trusts have beepAriticized on various grounds, and some of these. criticisms &Serve attention. One is that through their operations control of companies may pass into the hands of the Trusts, and that if many successful Fixed Trusts were to pick on certain industrial shares the price might be driven to fictitious levels, or, equally, might fall to unsaleable prices if anything occurred to cause Certificate holders to wish to realize their invest- ments. Arising out of the principle of the Fixed Trust, of course, there is the consideration that the holder of the Sub-Unit Certificate does not possess shareholders' voting rights in the companies in which he is interested as he would do if he held the shares directly. This criticism, however, is equally applicable to 'the old-established Investment Trust companies where the directois exercise voting rights in respect of the shareholdings of their company without consulting their own stockholders. The latter, however, have voting rights in the control of the'Trust itself, which is not the case with a Fixed Trust. Such control, indeed, is unnecessary if the Trust is really a fixed one. • One point which the investor should realize thoroughly is that the prices quoted for the Sub-Unit Certificates of these various Fixed Trusts are not market prices in the ordinary sense • they represent the underlying value of the securities, plus the cost of the purchase of the securi- ties and the allowance for expenses. The managers are willing to cash the Units at the net selling value of the securities or sell them at the gross figure. Thus, there is a turn in the price, between buying and selling, of which the greater part would presumably be profit to the managers unless the volume of selling were so great as to necessitate realizations of the underlying securities.
UNDUE SECRECY.
If there is any justifiable criticism which can be made against the ptomoters of these Fixed Trusts, it is that they have been rather too secretive regarding the precise destination of the service charge included in the price of the Certificates, and as to any profits- that they are making after covering expenses of the Trust, including advertising. They have also been reticent as to the size of the Trusts and the amount of Certificates sold. Some began by fixing the size of the Trust, in the first place, and have announced that the Trusts were complete, necessitating the starting of others with a different list of securities behind the Units. The promoters of the Trust would doubtless reply that so long as they comply with the terms they have laid down for themselves in their Trust Deeds, that is all that concerns the investor, that the allocation of the fixed amount of the expenses is no concern of the Certificate holders, so long as the Trusts faithfully observe these terms—as, indeed, they are bound to do when they have a bank' or insurance company acting as trustee. The various classes of Certificates, while offering investors an assorted holding represented by first-class industrial shares, gold mines and other securities, undoubtedly provide a convenient medium for the diveisification of investment. For the small investor they should certainly provide a reasonably safe medium for the enjoyment of a moderately high retxum—safer, at all events, than he would obtain from the apparently philanthropic invita- tions which so often reach him through the post from unscrupulous vendors of shares in obscure companies. A. W. W.
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