The Press FRIDAY, JUNE 3, 1960. Unit Trusts

Press, Volume XCIX, Issue 29221, 3 June 1960, Page 10

The Press FRIDAY, JUNE 3, 1960. Unit Trusts

The establishment of the first unit investment trust in New Zealand will probably be welcomed by the rapidly-growing number of small investors who prefer company shares to other forms of small savings. Indeed, the trust would not have been created without evidence of a demand strong enough to justify the management company’s belief that it can earn a reasonable reward for the supply of its expert services. The attraction of company shares to an investor is, of course, the probability that their value will increase at least in proportion to any depreciation in the value ef money—as a hedge against inflation. The special advantage of a unit trust to a small investor is that the minimum subscription of £25 to the trust will buy him an interest in a great variety of companies, so that even if some shares turn out badly others are likely to do well. He could not spread his small investment in this way as an individual. That is why many private investment Clubs with a dozen or 20 members have sprung up in recent years. The unit trust is the same thing on a bigger scale; but because its scale is so big special arrangements have to be made to safeguard the rights of unitholders. Where a private club may be able to function with quite a simple constitution, the unit trust has independent trustees governed oy a trust deed, which specifies how the money may be invested and which oversees the work of the managing company acting as the trust’s agent. Regular audit provides a check on observance of the terms of the deed. Although unit trusts are new to New Zealand, they are well established in Australia, and the general idea of corporate investment in this way is quite old. Investment companies selling debentures to the public were first established in Scotland and were soon copied by other countries. On the whole, with a few notable exceptions, they have given useful service; but the more sharply defired methods of the unit trusts have commended them to small investors in recent years. Because of New Zealand’s earlier experience with one particular

group of investment companies, the Minister of Finance (Mr Nordmeyer) is right to becautious and to consider the possible need for special legislation. Large investors have the resources to protect themselves; but a multitude of small capitalists need someone to look after their interests. Though the existing law on trusts may be sufficient, careful examination by Crown experts is obviously wise. In the case of the first trust, at least, investors have reason for confidence. The directors of the managing company are capable men of business;' and the trustee company, which administers a great many existing trusts, has a justified reputation for integrity. The important point is to ensure similar probity in trusts that may be established in the future. At the moment there appears to be nothing to prevent the setting up of more unit trusts, which appear to be exempt from capital issues control, and competition would have some advantages. The creation of the trust at this time of an unhealthy upsurge in share prices is unfortunate. The release of another £500,000 on the share markets can only send prices higher still. The coincidence is simply explained. The demand for facilities for spreading small investments is a reflection of the heavy buying small investors are already doing on their own account. It is a pity that their combined influence could not have made itself felt first when the markets needed support. That would have been to the advantage of the trust itself. However, the trust is taking an essentially long-term view in forecasting only a 3| per cent, return at he outset. Another disadvantage of the trust’s operations is f hat it will take no share in the administration of companies in which it has holdings. A similar policy is followed by insurance companies and other institutional investors. Collectively, their withdrawal from the management responsibilities of shareholders could concentrate power dangerously in some cases. That is something for companies themselves to watch.