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Investment trust shareholder rights a beginner’s guide

Investment trust shareholder rights: a beginner’s guide

by Kyle Caldwell from interactive investor | 23rd March 2021 14:04

We explain everything investors in investment trusts need to know about their shareholder rights and why voting matters.

One of the longstanding, but perhaps understated structural advantages of investment trusts versus funds is their independent board of directors. It is their job to exercise independent oversight, hold fund managers to account (including the ability to sack them) and look after the interests of shareholders (such as by driving down costs).

In addition, as a shareholder in an investment trust you have the same voting rights as shareholders in other companies. This gives you the opportunity to have your say and exert influence…

The firepower boards have in being able to sack a fund manager, as well as the fund management group, is a positive thing for shareholders. They are fighting your corner in ensuring that the trust is being managed in line with its investment objectives, while keeping a close eye on performance…

With investment trusts, the board can either opt to find a replacement at the same fund firm or appoint a new fund management company.

As far as individual investors are concerned, a shareholder vote is required if this leads to “material change” to how the trust invests…

Continuation votes

Some trusts give shareholders the option of voting on whether it should continue or be wound up…

Common voting items at AGMs

Among the most common voting items at AGMs..

Issuing new shares

Boards also often ask shareholders for approval to purchase up to 14.99% of their own shares. Trusts tend to buy back their own shares to keep the discount or premium under control.

In addition, investors are also regularly asked to give their blessing for new shares to be issued…

“Issuing new shares on a discount without pre-emptive rights is very heavily frowned upon by the market,” says Matthew Read, an analyst at QuotedData.

Read more here

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