Best investment trusts for 2023

Best performing investment trusts

Let’s just cut to the chase. You want returns that beat the market. So, here are some funds that have done exactly that. Check out these 10 best performing investment trusts (by NAV) in the UK since 2018, according to Citywire:

What is an investment trust?

Investment trusts are set up like a company. When a trust is created, funds are raised (a bit like a start-up) creating a big pool of money. A certain number of shares are also created for the investment trust. The number of shares usually stays the same but can go through a stock split or reverse stock split (like regular stocks) if the shareholders decide it.

Investors like you then have the opportunity to buy or sell shares in investments trusts on stock exchanges, just like you would with any other company. The investment trust however, operates like an actively managed investment fund that invests in other companies. Each trust will have a fund manager who’s overseen by a board of directors to make sure the investment trust is being managed in the best way.

Investment trusts will all have individual goals and aim. Some will invest in property, others in private equity. Certain trusts will look for growth and others will look for income. There are so many flavours of investment trusts to suit just about every type of investor.

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Best income investment trusts

The Association of Investment Companies (The AIC) has a list of “Dividend Heroes”. These trusts have maintained or increased dividend payments over decades and some of the best income investment trusts include:

How do investment trusts work?

In the UK, investment trusts are run as companies and listed on the London Stock Exchange, with a board of directors, annual reports, and all that jazz. When you invest in a trust, you become a shareholder.

As a shareholder, you’ll generally be entitled to a percentage of the income generated by the trust’s investments, such as dividends and interest. However, there’s no guarantee of income, and some investment trusts concentrate on growth without paying dividends.

The shares for an investment trust can be bought and sold on the stock market, which means the price of the shares can move up or down.

Advantages of an investment trust

• Potentially lower costs. Investment trusts can be an effective and efficient way to get an expertly managed portfolio of investments for a competitive fee
• Diversification. They can give you exposure to a wider range of assets (like property, private equity, commodities) and therefore diversify your portfolio.
• Hands-off investing. By purchasing shares in a trust, you’re effectively giving a professional fund manager the permission to invest on your behalf. This saves you having to actively research and manage your own investments, and also means you can avoid costly trading fees.
• Gearing and income retention. Gearing means managers can borrow money to maximise the trust’s profits (but this can also maximise losses). The 15% income retention also allows some trusts to pay a steady income even if the portfolio performance is down.

What to consider when picking investment trusts

• Track record. How has the trust been managed in the past and what is the future outlook?
• NAV. Is the trust currently trading at a discount or premium compared to its NAV? If a trust is trading well above or below its NAV, it’s important to determine why this may be the case before investing.
• Cost. What is the total cost for investing in the trust? Some investment trusts are more expensive than others.
• Gearing. Be wary that gearing can maximise returns or maximise losses.

Bottom line on the best investment trusts

Finding the best investment trust isn’t an exact science. The main reason is because each will have its own goals and aims, just like you. Past performance shouldn’t be the only thing you look at, but it is worth checking how a trust has performed in the good times and the bad.

Make sure you find an investing trust that best fits in with you investing style and risk appetite. Trusts can be an excellent tool to flesh out your portfolio, but finding the best investment trust for your portfolio is something that will be unique to you.

Frequently asked questions

• How do investment trusts make money?

  Investment trusts initially raise money by selling a set number of shares to investors who want to join the trust. The money raised from selling shares is then pooled together and invested on behalf of the trust by an appointed fund manager. Depending on how the money is invested, the trust may then make money from things like stock appreciation, dividends and interest – as well as any trading profits.

• Should I buy an investment trust at a premium?

  If an investment trust is trading at a premium, it means that demand for its shares is high, and this may be seen as a sign that the trust is a good investment. However, before investing, it’s important to first understand why it may be trading at a premium, and if it’s likely to continue doing so. Many investment trusts actually trade at a discount, and you’ll lose money if you buy shares in a trust at a premium, which then drop below its NAV.