INVESTMENT TRUSTS.

Auckland Star, Volume LIX, Issue 246, 17 October 1928, Page 4

INVESTMENT TRUSTS.

A MODERN MOVEMENT.

SPREADS TO NEW ZEALAND

One of the most notable developments in the money market has been the remarkable popularity of Investment Trusts. Such organisations have been in existence in Great Britain for a considerable period, but it is only within comparatively recent times that the possibilities of the principles involved have been fully realised, find the movement has spread with accelerated speed both in Great Britain and the United States.

A little over twelve months ago there were approximately 130 Trust Companies operating in the British Isles with a paidup capital of £186,000,000. During the last three years over 100 Investment Trusts have been formed in the United States of America, and since the beginning of 1927 over £70,000,000 has been subscribed ior new Investment Trusts.

The methods of Investment Trusts have been referred to frequently in these columns, but as a Dominion concern running on these lines is now being organised they may be restated. The Trust invests the funds of its shareholders in the shareß of other companies and in various financial undertakings, and from the combined earnings pays its dividends. It does not simply buy shares and hold them indefinitely, but sells a particular line when the time seems opportune, and with the proceeds buys other shares from which a better return may be expected. In the ordinary way. of investment a person with £100 to invest will select a particular company which, according to his judgment, is likely to yield a profitable return. The security of the principal is Wrapped up in the prosperity of one undertaking. If he entrusts it to the operations of an Investment Trust his £100 becomes part of a common fund which is spread over a large number of enterprises. In other words, the shareholders pool their resources, accept the judgment of the Trust officials, and obviate the disadvantages that may obtain through having "all the eggs in the one basket." It must not be assumed; however, that an Trust provides the only means whereby an investor can scatter his investments. Provided the

amount he has saved is anything ahovte a hundred pounds he can instruct big broker to divide his investments amongst various stocks.

It tras only to be expected that attempts would be made to introduce the.. Investment Trtist system to tMa part of the world, and discussions in that direction have been frequent in Commonwealth centres during the past twelve months. Conservative authorities suggested that the 1 time was scarcely ripe for such a development in Australia, urging that the volume of cheap money available in Sydney or Melbourne Was not sufficient to justify the operations of an Investment Trust. * However; within the last few months J. B, Were and Sons, well-known investment brokers, with headquarters in Melbourne, haVe floated an investment Trust, and their example has be#® quickly followed by a Sydney concern, to be known as "The Australian' Investment Trust.'' The latter, with a nominal capital of £ 1,000,000, is at the present time offering 300,000 £1 shares for; public subscription, and 10,000 fully-paid are to be handed to the promoters of the concern, who, it is claimed, are ill a position to give valuable assistance to the company,, and havgi expended considerable sums in preliminary investigations. / Support fov ihia company has wen Bought' in Auckland -and other Dominion centres, and it is at, thik stage tliat the first New Zealand concern of the kind, the British and Dominion Investment Trust, Ltd,, enters the

With headquarters in Auckland and a directorate comprised of business men of this city, the local poneerh has fixed its nominal Capital at £500,000 in £1 shares, of which £100,000 are ih»w being offered fo? public subscription. .The company resctyes the right to go to registration as seen as 40,000 shares bare been applied for. It is worthy of note that in contrast with the Australian Investment Trust, which has been adversely criticised because of the proposal to issue 10,000 fully paid-up shares to the promoters, the local ptospectus states clearly that no consideration of any kind is being given to those responsible for its initiation.

The abridged prospectus follows the lines of those issued in Australia by stressing the success of Investment Trusts in Great Britain. Too much importance should not, however, be attached to these results, as no reasonable analogy can be found between conditions ruling in the different countries. The essence success in the Operations of such a company as is now proposed is the control of funds at a relatively low rate, and in sufficient volume to make possible the purchase of stocks-under most favourable conditions. Loose capital needs to be available at a moment's liotioe if full .advantage is to be taken of the fluctuating conditions of the Stock Exchange; These conditions elist in London 6nd other of the large financial centres of the old florid, and the success of the trust companies that have been recently quoted in prospectuses' is due to their ability t6 obtain- cheap money outside their own resources. It has yet to be proved that .Australia offers scope for profitable business by Investment Trusts, and much more so must the local Venture be deemed an experiment. The promoters are to an extent justified in drawing attention to the profits' made between August 23, 1927", and August 23,, 1928, of a number of banks and selected companies, but it. must not ; be 'overlooked that a substantial proportion of the 'increment has come from premiums on new issues, so that in some respects the period has been abnormal. It is trne, likei wise, as the prospeetus emphasises, that I there is more money available now for investment than has been the case for a ! good many years, but it is not assured that the new Trusfc will be able to command a > sufficient proportion of . the new business offering to pay general expenses dividends, preliminary expenses, and build up reserves, iiowever, the promoters of the British-and Dominion Investment Trust are hopeful of. making substantial accretions to its income by undertaking business for local bodies' loans and company debenture issftes. It is" claimed that there is quite a large field in. this line for the Trust's activities, and that a certain amount of business is.:: already assured. Underwriting, however, involves keeping a substantial amount of capital in a liquid condition, and the interest return on the money so held would be small. <Y It is the intention of the Trust to the policy adopted by similar English institutions and supplement ordinary capital hy the issue of preference shares and dewnture Jgfeues.: this will be employed in dealing first with such gilt-edged securities as and local body loans and mortgages, and preferred possibly a reniammg - investment capital to trading concerns. In statenii^ffc^ 1 * nf- dn-ectors make the kTSj^ #Aited shares are affected ' S* c ?2 lc ' and add:—"New 29ttsnas&*>i* cycle lost cast^witw? 11 taveXmMm? lth tlie