What is gearing?

Investment trust managers have the flexibility to borrow money in order to purchase investments - this is referred to as 'gearing'. If the total assets of a trust are worth £100 million, and the manager borrows £10 million. This is expressed as 110% gearing.

The effect of gearing on an investment trust means when financial markets are rising, gains are magnified. In contrast, losses are also magnified when markets fall.

Still need help?