Funds, ETFs and investment trusts

Buying one share means betting on one company. A fund lets you buy a small slice of hundreds or thousands of companies in a single purchase. Your money is pooled with other investors' and the fund holds the shares for all of you.

A tracker fund (or index fund) simply copies an index, like the FTSE 100 or a world index. There is no star manager picking shares, so fees are low. V3AB, for example, is a tracker of thousands of companies worldwide, and VWRP tracks a similar world index. The fee you pay each year is the OCF (ongoing charges figure), often well under 0.3%.

An ETF (exchange-traded fund) is a fund that trades on a stock exchange like a share, so its price moves all day. INRG, a clean-energy fund, is an ETF. It owns about 100 clean-energy companies, including Enphase. When Enphase crashed 16% on Wednesday, INRG fell only 1.5%: losses in one company are softened by the rest. On Thursday Enphase bounced 3.5% and INRG barely moved.

An investment trust is different again. It is a company listed on the stock market whose business is owning other assets. Greencoat UK Wind and TRIG are investment trusts that own wind farms and solar parks. Because a trust has a fixed number of shares, its share price can drift away from the value of what it owns, its NAV (net asset value). When the share price is below NAV, it trades at a discount; above, at a premium. On Thursday Greencoat published its latest NAV, and TRIG finished selling its stake in the Beatrice offshore wind farm. That is the kind of news that can narrow or widen a trust's discount.

Thursday also showed how a broad fund behaves. Alphabet fell nearly 13%, its worst day on record. Yet V3AB slipped only 0.8% and VWRP 0.6%, because Alphabet is a small slice of each.

The trade-off: a fund spreads your risk, but you also give up the chance that one brilliant pick makes you rich. For most long-term investors that is a good swap.