BLOG: Why you might consider investing in a trust
Of course, these products aren’t new. The oldest trusts actually date back more than 100 years – but their often-overlooked qualities are making them increasingly attractive to investors.
These benefits include the ability to access a wider range of investments and more specialist areas of the market. Trusts can also smooth out income payments by retaining up to 15% of their net income each year and distributing it when times are more challenging.
Experience and track records
If all this wasn’t enough, the investment trust world is also full of hugely experienced managers with impressive track records of performance that have been forged over many years.
In fact, the seven best performing trusts have increased their dividend for at least 50 consecutive years, according to data published by the Association of Investment Companies.
As an added tier of reassurance, trusts also employ independent boards charged with looking after shareholders’ interests. They meet several times a year and constantly monitor performance.
However, there are potential downsides to consider. As their shares are listed on the London Stock Exchange, the prices will be affected by supply and demand. This can make them potentially volatile.
Investment trusts can also trade at a discount or premium to their net asset value. This means you could pay less or could pay more for a share than the underlying investment is worth. Careful consideration needs to be taken to decide if you think a discount or premium will get larger or smaller over time.
Trusts worth considering
As with any investment, it’s important to carry out thorough research – particularly as there’s no shortage of investment trusts available, with portfolios covering assets across the globe.
We’ve picked out five trusts that are worth considering.
Let’s start with a potential contender that primarily invests in the UK market with the goal of achieving capital growth.
Fidelity Special Values PLC invests primarily in unloved UK companies and then waits for them to come into favour – and prove the wider market wrong. Its managers, Alex Wright and Jonathan Winton, adopt a contrarian style and search for potential catalysts for improvement that haven’t been recognised. Any prospective holdings must also come with cheap valuations or an attractive asset such as intellectual property.
Then there is the European Opportunities Trust PLC that’s run by Alexander Darwall, who is easily one of the most experienced names in fund management. After more than two decades with Jupiter Asset Management, Alexander formed Devon Equity Management three years ago. However, he’s been managing this trust since 2000. Investors get access to a high conviction portfolio of European equities, with a bias towards medium and larger companies. Those with strong positions in their industries will be favoured.
If you’re after something with a more international feel, there’s the Mid Wynd International Investment Trust PLC. This aims to grow real wealth by investing in high quality stocks worldwide. The trust is managed by Simon Edelsten and Alex Illingworth who have a disciplined valuation process that considers how much a stock might fall in value, as well as rise. Currently, the trust’s largest holdings include global household names such as Microsoft, MasterCard, Pfizer and IBM. There’s also an impressively broad spread of sectors.
Of course, the developing parts of the world remain an enticing prospect for many investors as they offer the possibility of returns surprising on the upside. The JPMorgan Emerging Markets Trust, which was launched back in 1991, has a long-term track record of investing in equities from these regions. Its manager, Austin Forey, and his team focus on putting together a diversified portfolio of high-quality emerging market companies. These can include both large and small cap names. This stock selection process includes more than 4,000 company visits every year to search out firms with sustainable business models and robust ESG credentials.
The final name on our list is the long-established City of London Investment Trust. This has clocked up a remarkable 56 consecutive years of dividend increases. The trust was launched back in 1891 and aims to provide growth income and capital by investing predominantly in larger UK companies with international exposure. Among the stocks currently held by manager Job Curtis, who has been at the trust’s helm since 1991, is oil giant Shell, pharmaceutical firm AstraZeneca, HSBC bank, and British American Tobacco.
Darius McDermott is managing director at FundCalibre