Investment Trusts

Investment Trusts are like investing in shares but they are structured like a company with directors, who may employ a fund manager to manage the individual investments within the Investment Trust. 

Historically, they are one of the oldest types of ‘collective’ or ‘pooled’ investment with the earliest Investment Trusts going way back to the beginning of the last century.

Unlike Unit Trusts they offer a set amount of shares which means that just like any other shares they are impacted by overall market movements.

What Can An Investment Trust Invest in?

An investment Trust will have ‘stated investment objectives’ and these may mean they are spread globally or narrowly focussed on a smaller market or segment within a market.

Investment Trusts can invest in a wide range of sectors including:

Technology;

Healthcare;

Emerging markets;

Private equity and venture capital.

A minimum timescale at least five years is preferable and if your timescale is shorter than this it may be best to look at short term alternatives.

Performance of Investment Trusts

An Investment Trust is able to borrow money to invest in shares. This is known as gearing.

The level of gearing impacts risks and returns.

Gearing can either positively enhance gains or negatively diminish them to a far greater degree.

The level of gearing an investment trust allows is a key factor in choosing which investment trust fits with your personal risk appetite. 

Through a robust financial planning strategy you should be comfortable with the level of risk your risk exposure.

Taking Income or Reinvesting in Investment Trusts?

Investment Trusts have become a popular way for investors seeking regular income and many offer quarterly payments.

In a low interest rate environment this is very attractive especially if the investment trust is sheltered from tax within an Individual Savings Account (ISA).

If they’re not tax will apply. 

In 2020/21 a dividend allowance of £2,000 is available and this is the tax-free amount. Therefore any dividend amounts over this the following tax rates apply:

• a basic rate taxpayer will pay 7.5%;
• a higher rate taxpayer will pay 32.5%;
• and an additional rate taxpayer will pay 38.1%.

Tax rates change (some more than others!) so it’s always worth paying attention to the budget each year.

Investment Trusts within a SIPP Account

Using a SIPP Pension wrapper to hold investments means that up until the age that access is permitted (from age 55 and rising to 57 by 2028) the investments are sheltered from both income tax and capital gains tax.

If a time horizon of 5 years and above is needed then investment trusts can be a useful type of investment. Moreover, with the right level of gearing good performance is achievable.

If you’re new to SIPPs it may be wise to choose a well established manager to begin with.

Investment Trusts publish specification sheets that show who the managers are and their experience.

Investment Trust Charges

• Investment Trust Charges – Annual fee to fund manager for managing fund
• Director and Audit Fees
• Performance Fees (Shown on Key Information Document of Trust)

Investment Trust Providers:

Axiom

A punt.

Finsbury Growth and Income Trust

is rug by Nick Train and follows the investment style of Warren Buffet. This trust has performed very well.

Murray Income Trust

Not as high performing as Finsbury Growth but still very good. Significant headwinds from the fall out of Coronavirus may hinder some elements of returns going forwards.

There are many many investment trusts and the key is finding the ones that fit in with your investment philosophy, objectives, time horizon and ethical qualities.