Investment trusts should be an important part of any balanced portfolio, JP Morgan Asset Management argues in the first part of a series of reports on such investment vehicles.

In the first part in a series of five, which seeks to explain why investors should consider investment trusts, the firm sets out that this kind of investment company offers better protection as each one of them is managed in the interest of its shareholder by a board of directors. For example, JP Morgan believes that independent boards explain why investment trusts have competitive prices.

The asset manager also lists other benefits such as the fact that investment trusts have greater freedom to borrow money to invest in order to boost returns. JP Morgan asserts that gearing rates of 10 per cent and 20 per cent would have increased the total return on the FTSE All-Share Index in the past 20 years from 141 per cent to 155 per cent and 169 per cent, respectively.

In the past year and five years, however, 20, 10 and 5 per cent gearing would have led to bigger losses than no gearing due to heightened volatility. For this reason, JP Morgan advises investors to make sure that they fully understand the policy of an investment trust before making an investment.

JP Morgan launched its first investment trust in the late 19^th century in the US and today it has 21 of them worldwide.

F&C Investments, the UK-based asset manager, published research last year which showed that investment trusts have beaten open-ended funds in most sectors and periods over the past 10 years.