Profile of an ideal warrant

Article Abstract:

UK investment trust warrants offer an inexpensive way of gaining exposure to the stock market and their prices in Oct 1996 often imply no time value. Warrants could be affected by a correction in world stock markets. Investors who seek security should use UK government securities (gilts) and building society accounts. More optimistic investors can take advantage of warrants. They should look for a number of characteristics. These include high gearing, a low premium, long life, and underlying shares that are attractive.

Securities and Commodity Exchanges, Security and commodity exchanges, Securities Exchanges, Exchanges

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The dilutive impact of warrants

Article Abstract:

Some UK investment trusts are launched offering free warrants and this is usually an offer of one warrant for five ordinary shares. Warrants allow holders to buy shares at a set price on a certain date. Warrants mean that net asset values of the shares are diluted. This is not a problem for initial investors who hold warrants but investors could be affected if they buy through secondary markets. Future dilution could also be a problem and investors can calculate future dilution ratios.

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Gearing can be good for trusts

Article Abstract:

Gearing can improve the performance of investment trusts, boosting returns to shareholders over the long term. Gearing may involve borrowing to invest in equities, with a set interest rate for a specified period. This brings benefits if returns from equities are above the interest rate. Borrowings may be invested in bonds as well as equities, and this will affect the fund's performance.Losses may be magnified if there is a short-term drop in the market.

Management, Economic aspects, Gearing, Gears

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