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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:
| Trust | 5-year return (to July 2023) | |
|---|---|---|
| Pershing Square Holdings Ltd | 246.43% | Invest with XTBCapital at risk |
| HarbourVest Global Private Equity | 166.51% | Invest with XTBCapital at risk |
| HgCapital Trust Plc | 137.92% | Invest with XTBCapital at risk |
| Geiger Counter | 134.55% | Capital at risk |
| 3i Group Plc | 133.25% | Invest with XTBCapital at risk |
| Adams Plc | 119.68% | Capital at risk |
| Pantheon International PLC | 104.77% | Invest with XTBCapital at risk |
| Gulf Investment Fund plc | 101.73% | Capital at risk |
| CT Private Equity Trust PLC | 100.45% | Invest with XTBCapital at risk |
| ICG Enterprise Trust Plc | 94.39% | Invest with XTBCapital at risk |
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:
| Trust | Consecutive years dividend increase | |
|---|---|---|
| City of London Investment Trust | 56 | Invest with XTBCapital at risk |
| Bankers Trust | 56 | Invest with XTBCapital at risk |
| Alliance Trust | 56 | Invest with XTBCapital at risk |
| Caledonia Investments | 56 | Invest with XTBCapital at risk |
| The Global Smaller Companies Trust | 52 | Invest with XTBCapital at risk |
| F&C Investment Trust | 52 | Invest with XTBCapital at risk |
| Brunner Investment Trust | 51 | Invest with XTBCapital at risk |
| JPMorgan Claverhouse | 50 | Invest with XTBCapital at risk |
| Murray Income Trust | 49 | Invest with XTBCapital at risk |
| Scottish American | 49 | Invest with XTBCapital at risk |
How does gearing work with investment trusts?
Finder expert George Sweeney answers
Gearing works similarly to using leverage when trading. It basically involves putting down a portion of capital for a trade, but also borrowing funds.
Doing this allows the fund managers to make bigger investments and trades with a smaller amount of money. So if the expert team is correct, they can maximise the returns of the investment trust. And do so with a smaller sum of money than if they’d placed a standard trade.
However, this swings both ways. Gearing and using leverage also means that if the investment doesn’t pay off, your losses can be magnified. The trust would lose more money than if it hadn’t used gearing. So it’s a risk/reward payoff that needs to be considered.
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.
Investment trust
Also known as a “closed-end” fund, this type of trust has a fixed number of shares, which means the amount of money is also fixed. The shares can then appreciate or depreciate. This gives the fund manager more stability and control over how they invest the trust’s money because they don’t have to worry about selling investments if someone wants to withdraw money.
Unit trust
Also called “open-ended” funds, a unit trust can issue or redeem additional shares at any time, such as to meet increased demand. While it means the trust can have additional money to invest, it can also create issues if too many investors want to sell out of the trust because assets may have to be sold.
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
This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.
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