Investment trusts’ ability to borrow money to invest gives them an edge, says JP Morgan Asset Management in the UK.

Research made by the asset management titan shows that 20 per cent gearing would usually generate an increase in return of between 20 and 24 per cent. JP Morgan points out, however, that a market fall would lead to worse returns.

To cope with the heightened volatility, investment trusts can increase or decrease gearing depending on what is happening in the market. The ability to make tactical adjustments in this make can make a major impact on overall returns in periods of flat returns, as in the past 10 years, JP Morgan said.

Investment trusts typically use five different types of debt: bank overdrafts, fixed-term bank loans, convertible bonds, floating rate notes and debendtures.

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