Page 9: Spreading risk
Let's take a look at how an Investment Trust can spread risk and secure good returns in terms of both income and growth. Some Investment Trusts spread risk by investing in countries all over the world. An Investment Trust investing globally might spread its investments in the following countries: UK 38 rest of Europe 25 USA 23 Japan 9 rest of Asia 3 elsewhere 2
When choosing a company in which to invest, fund managers carry out a detailed analysis of the:
- company's strength of management
- markets in which it operates
- general business environment.
Fund managers also scrutinise, among other factors, trends in the:
- balance sheet
- value of earnings per share
- dividends paid to shareholders
- company's cash flow
- company's level of debt.
Investment Fund Managers also take into account changes in the exchange rate against the pound. This is vital, because while a company may be successful in its own country it may prove to be a poor investment if the currency in which it operates is losing value against the pound.