Where the five biggest selling investment trusts invest


Two world wars, the atom bomb and a plethora of economic booms and busts later, and investment trusts – launched 150 years ago – are still going strong.

Foreign & Colonial was the first to launch in 1868, with the aim of giving those on modest incomes access to the stock market at a time when investing was the exclusive preserve of the wealthy.

It did this by pooling investors’ cash together to give them exposure to investments they wouldn’t otherwise have had access to.

Bright idea: Investment trusts predate the invention of Edison's light bulb

Bright idea: Investment trusts predate the invention of Edison's light bulb

Bright idea: Investment trusts predate the invention of Edison’s light bulb

There are now nearly four hundred investment trusts – also referred to as investment companies – trading in the UK, offering the private investor exposure to shares and bonds from all regions of the world.

Assets range from property and alternative investments to individual sectors including technology, healthcare and mining.

One of the reasons they have proven so popular with investors has been their track record of paying out dividends, providing a steady income through thick and thin.

What is an investment trust?

Investment trusts differ from open-ended funds in a few ways. They are structured like a company, with shares that trade on the stock market and invest in a basket of shares, bonds or property. 

They are known as closed-ended as the number of shares or units trading in the trust is limited and finite.

Investment trusts can be riskier than unit trusts because their shares can trade at a premium or discount to the value of the assets they hold, known as the net asset value. 

Unlike closed-ended funds – also sometimes called unit trusts – investment trusts are also allowed to raise debt in order to fund investment. This means when markets perform well their investment returns are geared and can outperform the market.

It also exposes investors to risk however, as debt-funded investment can result in bigger losses if markets fall. 

Those with the longest history of rising dividends are now classified as Dividend Heroes by the investment trust trade body, the Association of Investment Companies. 

And only trusts that have raised their dividend payout for at least 20 consecutive years are inaugurated to this exclusive club.

There are 21 members at present and some have grown their dividend for more than 50 years in a row.

Such products have proved increasingly attractive – particularly among pensioners who’ve opted to invest their nest egg for income following the pension freedom reforms, and amid rock-bottom interest rates.

But income isn’t their only attraction. There are also investments trusts designed with the primary purpose of growing capital as much as possible within the parameters of their risk profile. 

For one reason or another, there are a handful of trusts that have emerged as a favourite among investors. This is Money has identified the most popular trusts this year up to the end of April based on the bestsellers on the Hargreaves Lansdown, Interactive Investor and AJ Bell Youinvest platforms.

Here are the top five – in no particular order. 

Ongoing charges: 0.37 per cent

Is it trading at a discount or premium? Premium of 3.86 per cent 

Dividend yield: 0.59 per cent  

At a glance: Scottish Mortgage has over 100 years of history behind it having been founded in 1909. The trust invests in companies across the world for investment growth over the long term.

The managers, James Anderson and Tom Slater, aim to achieve a greater return than the FTSE All World Index over a five-year rolling period.  

Performance (%) 
One year Three years  Five years 
32.76  96.44  220.75 
Source: FE Analytics    



Top holdings: Amazon, Tencent Holdings, Alibaba, Illumina, Tesla 


Adrian Lowcock, investment director at Architas, said: ‘The trust’s popularity and reputation are solid among investors as it has focused on long-term investment growth, while delivering real dividend growth – it has only cut its dividend once in its history in 1933. 

What is trading at a discount and premium?

Unlike funds that always reflect the value of their underlying holdings, investment trusts are traded on the stockmarket like shares and can be more or less expensive than the sum of their parts.

Funds grow in size or shrink as money comes in from investors, or is withdrawn.

Investment trusts on the other hand have a limited number of shares, so high or low demand can mean the share price may be higher or lower than the net asset value – the book value of the assets they have invested in.

A trust trading above net asset value (NAV) is said to be trading at a premium – i.e. it costs more to buy the shares than the underlying investments are worth, meaning there is an expectation of growth. 

When the share price is below the NAV, this is known as trading at a discount. Some investors see this as an opportunity to buy cheaply.

‘It focuses on identifying companies with high growth and then looks to hold them for the very long term. The fund’s turnover therefore tends to be very low and the managers don’t pay any attention to benchmarks.

‘The fund is fairly low cost at around 0.44 per cent charge which, given the focus on unquoted specialist business, is good value for money.

‘Strong performance in recent years hides the fact this fund is likely to be volatile as it tends to have exposure to disruptive companies and sectors such as technology, healthcare and consumer goods.

‘The portfolio looks well positioned to benefit from continued global growth and the earnings growth of the technology sector, but will suffer along with the sector if there is more volatility in markets.’

Ongoing charges: 0.42 per cent

Is it trading at a discount or premium? Premium of 1.75 per cent

Dividend yield: 3.85 per cent   

At a glance: Launched in 1891, the City of London trust aims to generate investment growth and income over the long term – principally through investment in stocks listed on the London Stock Exchange.

The trust, managed by Job Curtis, has increased dividends for 51 consecutive years. 

Performance (%) 
One year Three years  Five years 
6.87  22.31 48.19 
Source: FE Analytics     
Source: FE Analytics

Source: FE Analytics

Source: FE Analytics

Top holdings:  Royal Dutch Shell, HSBC, British American Tobacco, BP, Diageo 


Lowcock said: ‘This is an income seeker’s dream and shows the importance of simple and clear dividend and investment policy. 

‘The focus is very much on long-term investment returns through a combination of growth and income.

‘The trust has a diverse portfolio of over 100 stocks, primarily in the UK but it also invests overseas to help diversify its income stream even further.

‘The diversification of the trust across a number of sectors and internationally focused UK businesses should help protect investors from volatile markets. 

‘The conservative nature of the trust and the ability to hold around six months’ dividends helps protect the trust from any dips in dividends should the outlook for dividends turn sour.’ 

Ongoing charges: 0.19 per cent

Is it trading at a discount or premium? Discount of 10.26 per cent

Dividend yield: n/a (growth trust, therefore pays no income and reinvests dividends)

At a glance: Run by long-term star fund manager Neil Woodford, this trust was launched in May 2015 and targets long-term capital growth by investing in a portfolio consisting predominantly of UK companies, both quoted and unquoted.

It is trading at a hefty discount at present, as a result of the recent under-performance of several of its holdings including Prothena. The fund has returned -28.43 per cent since inception. However, as the name suggests, this fund is designed for long-term returns, not short-term profits.

Performance (%) 
One year Three year 
-17.14%  -28.43 
Source: FE Analytics   

Top holdings: 

Oxford Nanopore, Benevolent AI, Prothena, Immunocore, Purplebricks   


Tony Yousefian, investment trust specialist at fund research ratings agency FundCalibre, said: ‘Woodford Patient Capital was very popular with investors as Neil Woodford has a lot of fans – investors who have done well in his funds over the years and who want to follow him and invest with him.

‘This trust went to a premium of around 20 per cent after its initial public offering, which shows how popular it was. Since then it has been marred by a couple of stock specific issues and is now trading at a discount.

‘However, this trust was never going to be a one or two or even three-year story – it’s in the name. Investors will need to be patient.

‘It is all about long-term incubator businesses – taking great tech and intellectual property and commercialising it. You’d expect some to fail but hope that one or two are the next Facebook or Illumina. We are starting to see one or two companies start to do well.’   

Ongoing charges: 0.89 per cent

Is it trading at a discount or premium? Premium of 9.87 per cent

Dividend yield: n/a (growth trust)

At a glance: The trust seeks to generate long-term capital growth predominately through investment in small Japanese companies which are believed to have above average prospects for capital growth.

It is run by Praveen Kumar and currently trades at a 9.87 per cent premium 

Performance (%) 
One year Three years  Five years 
56.63  156.52  196.99 
Source: FE Analytics     

Top holdings: Istyle Inc, Outsourcing Inc, Nihon M&A Center Inc, Monotaro, PeptiDream


Should you buy at a premium? 

Logically it would seem that buying at a discount is wise, while buying at a premium is not.

However, just because a trust is trading at a 10 per cent discount or premium isn’t necessarily a reason to buy or not to buy. 

The key is to look at what the premium or discount is compared to its previous positions. 

If a trust’s premium is lower than usual it could be good value, while if its discount is smaller than usual, it might be toppy.

Yousefian said: ‘Baillie Gifford Shin Nippon has become popular as the performance has been so excellent – investors want to have a part of it. 

‘That has resulted in it trading on a 10 per cent premium at the moment which is high compared with its history, but not unheard of.  

‘This trust is one of the higher-octane options and isn’t for the faint-hearted as invests in smaller companies and those at early stages. But it has rewarded handsomely.

‘I’m positive on Japanese equities at the moment and the growth style has been in favour for some time, which has helped this trust. I’m positive on it – with the caveat that if you invest now, you are obviously paying an extra 10 per cent for the privilege.’ 

Ongoing charges: 0.59 per cent

Is it trading at a discount or premium? Premium of 2.52 per cent

Dividend yield: 0.15 per cent

At a glance: The trust targets capital growth over the long term and income but the former takes priority. It principally invests in growth stocks from across the globe and is managed by Charles Plowden who is supported by Malcolm MacColl and Spencer Adair.

Performance (%) 
One year Three years  Five years 
21.07  90.45  127.65 
Source: FE Analytics     

Top holdings: Amazon, Naspers, Prudential, Taiwan Semiconductor Manufacturing, Alibaba 


Ben Yearsley, investment expert at Shore Financial Planning, said: ‘Monks, and sister trust Scottish Mortgage, have both been in a sweet spot over the past few years. 

‘The focus has clearly been on long-term, high growth often tech-related stories both in developed markets and emerging ones.

‘The outperformance since 2015 has been impressive. It isn’t a pure tech fund though as financials are its biggest weighting.

‘With this kind of portfolio, patience is required though as they are buying long-term growth stories and there will be points in the cycle when growth is out of favour and this will underperform.’

The 150-year-old investment trust 

Ongoing charges: 0.79 per cent

Is it trading at a discount or premium? Discount of 1.06 per cent

Dividend yield: 1.53 per cent 

At a glance: The world’s first investment trust, F&C, launched in 1868 and is still going strong.

The trust targets capital growth and income over the long term by investing mainly in publicly listed stocks from across the globe as well as unlisted securities and private equity.

The trust has increased dividends for the 47 consecutive years.   

Performance (%) 
One year Three year  Five years 
19.51  61.72  104.25 
Source: FE Analytics     

Top holdings:  Amazon, Microsoft, Alphabet, UnitedHealth Group, Anthem Inc

Commentary: Yearsley said: ‘Being harsh, the continuing popularity of F&C does amaze me slightly as the record isn’t that great. 

‘Yes it’s outperformed over the past few years, but over 20 years it’s only matched the sector average.

‘I wonder whether part of the popularity is down to its presence in the market place and being the oldest trust? 

‘The pick up over the past few years coincides with Paul Niven assuming control in 2014. It’s a very tech-focused portfolio with the top three all tech stocks.’


Source link