As the ISA deadline looms, many savers are mulling where to put this tax year's allotment, with investment trusts one of the popular options for private investors.
Recent research found that DIY private investors own almost a quarter of the £200 billion-plus investment companies listed on the London Stock Exchange by value, with another 25% held via wealth managers and 2% via financial adviser platforms.
With over 400 investment trusts to choose from it might be tempting for less experienced investors to just plump for the big names, such as FTSE 100 listed names such as Scottish Mortgage Investment Trust PLC (LSE:SMT), 3i Group PLC (LSE:III) and F&C Investment Trust PLC (LSE:FCIT).
But at different stages of an investor’s life, different trusts might be more suitable.
Below are various recommendations for younger, middle-aged and retired investors from financial advisers and wealth managers collated by the AIC.
Younger investors - equities, including tech funds
Younger investors with longer-term investment horizons are able to take a bit more investment risk, points out Dr Tomiko Evans, chief investment officer of Crossing Point Investment Management.
“With the development of AI, they may be interested in investing in a technology investment trust such as Polar Capital Technology Trust PLC (LSE:PCT) or Allianz Technology Trust PLC (LSE:ATT)," she says.
“Both are near the top of the ISA millionaire investment trust list with total returns over 1,500% from 1999 to 2023 and are currently trading at a discount. Technology was one of the most profitable sectors last year and the ongoing development of technology and AI will continue to gather pace.”
Also touching on the longer-term time horizon, Saftar Sarwar, chief investment officer of Binary Capital Investment Management, also goes for a tech-tinged fund.
“It is difficult to argue against Scottish Mortgage Investment Trust PLC (LSE:SMT) as a long-term buy and hold investment. It’s one to lock away for years to come," Sarwar says.
“Scottish Mortgage has had a challenging time in the past few years as investors navigated difficult markets. If one is prepared to take a long-term view, as younger investors should, then Scottish Mortgage is well placed for a number of reasons. It has genuine global innovative investments, many of which could be long-term winners in their respective areas of technology, healthcare and even biotechnology.
“In addition, unusually for a generalist investment trust Scottish Mortgage has a large allocation to private companies, an area of the market that can be difficult for many investors to get proper access to. It also has a competitive fee. The trust currently trades on a decent discount which should be supportive of the share price.”
Mick Gilligan, partner and head of managed portfolio services of Killik & Co, said the luxury of a very long time horizon means that equity-based trusts are likely to be the most appropriate option to maximise growth for younger investors, pointing the way to equities, which he points out have historically outperformed the other major asset classes over long periods of time.
“Within quoted equities, smaller companies tend to outperform larger companies," Gilligan says. “The Global Smaller Companies Trust is a great way to get access to a portfolio of good quality small and medium sized companies from across the globe. The trust currently trades on an attractive 16% discount to net asset value.”
Philippa Maffioli, senior investment manager of Blyth-Richmond Investment Managers, is another to plump for tech.
“In 2023 we saw a strong re-rating of technology stocks and I believe that this provides a good long-term opportunity for young people," she says.
“Polar Capital Technology Trust PLC (LSE:PCT) was launched in 1996 and is managed by a team of dedicated technology specialists aiming to maximise long-term capital growth through investing in a diverse portfolio of global technology companies.
“Technology will remain integral as we face the post-pandemic world and the young people of today have been greatly affected by this accelerated reliance and development of technology. Its impact is being felt across every industry with new opportunities arising from artificial intelligence."
Maffioli highlights that PCT's lead manager Ben Rogoff and his dedicated team pride themselves on their ability to identify developing technology trends and that the trust is currently trading at an “attractive" discount to NAV of 11%.
She also selects a smaller company trust, noting the segment's growth potential.
“The managers of Odyssean Investment Trust PLC (LSE:OIT) look to build a highly focused portfolio of investments of no more than 25 companies which are mostly in the TMT, services, industrials and healthcare sectors," Maffioli says.
“In addition, they focus on companies that are underperforming their potential and can see an opportunity to make a difference via constructive corporate engagement. I believe that young people should have exposure to this kind of dynamic portfolio management in their strategy.”
Middle-aged investors - diversification, income, India and healthcare
Binary Capital's Sarwar highlights the healthcare sector, one that is going through enormous change.
“Government healthcare budgets are under pressure and need to be better managed, technology is becoming increasingly important in healthcare, as are new areas of drug development in disease management and eradication," he says.
“The Polar Capital Global Healthcare Trust PLC (LSE:PCGH) is a good trust for investors seeking returns in that specific healthcare theme, and is ideal for those who wish to again take a long-term investment view here. The trust is well managed by an experienced team and importantly they invest with high conviction. The top ten positions account for around 50% of the trust with 40 to 50 investments held overall.”
Killik's Gilligan notes that middle-aged investors are unlikely to need income today but can still benefit from buying an equity income stream and reinvesting the dividends in a tax-efficient manner within their ISA.
“Utilico Emerging Market Limited (LSE:UEM) offers a yield of 3.7%, which could be reinvested, helping investors to harness the power of compounding. The trust offers exposure to essential infrastructure in emerging markets. Underlying companies have very strong market positions in areas such as airports, ports and power provision. It currently trades on an attractive 16% discount to net asset value.”
Maffioli of Blyth-Richmond says: “Whatever the age of the investor, global exposure within a portfolio is essential for the purpose of diversification."
JPMorgan Global Growth & Income is her tool to provide this, and she noted its “ability to provide capital growth and an attractive income stream is a great investment for a middle-aged person whose portfolio requires both elements".
The trust pays its dividend quarterly which is set at the beginning of each financial year, with manager James Cook aiming to build a portfolio filled with global best ideas, with the focus on companies that will provide the best total returns. The trust also has a yield of 3.4%.
For diversity and capital growth, Maffioli also recommends the inclusion of an India focused investment trust within middle-aged people’s portfolios: “It is important to identify interesting geographical regions which are likely to experience considerable growth. India benefits from encouraging global sentiment and growing direct foreign investment."
She noted that of India's population of 1.4 billion, a third of its citizens of working age, while increasing numbers of people are joining the middle classes, which is resulting in a profitable rise in consumerism.
“When meeting with Ayush Abhijeet of Ashoka India Equity Investment Trust PLC (LSE:AIE) I was impressed with the fact that this investment trust benefits from an India-based team of analysts who cover a full range of Indian equity opportunities.”
Crossing Point's Evans says for middle-aged investors, she would recommend JPMorgan American.
“Even throughout the volatility of the past few years, it has had good returns due to its high conviction portfolio of growth and value stocks to help weather different market conditions. The extra fiscal and Covid stimulus packages provided in the US throughout the past few years have helped the US equity markets to continue to thrive.
“As the Fed has signalled their intention to lower interest rates this year, the growth and real estate companies in this trust’s portfolio should be further supported, while an economic slowdown may support its value positions such as those in consumer staples,” Evans says.
Retired investors
For retired investors Maffioli's pick is Murray International Trust plc (LSE:MYI), a large global investment trust with a yield of 4.6%.
“Its experienced fund manager Bruce Stout is retiring this year, but is ably supported by both Martin Connaghan and Samantha Fitzpatrick. They state that their aim is to seek out exceptional investments at the right price and they do this by rating every investment against strict quality criteria designed for each asset class.
“I believe that this trust should be included in retired investors’ portfolios, due to its yield and prospect for capital growth to support them through a long retirement. It is currently trading at a discount of 11%," she says.
Another pick is Schroder UK Mid Cap Fund, where Jean Roche has been the lead manager for three years.
“I find her and her team’s enthusiasm for mid cap stocks very compelling," Maffioli says. "There is great diversity within this universe which often acts as an incubator and Jean and her team have curated a portfolio of around 50 companies which they believe have the potential to be tomorrow’s market leaders.
“In my opinion, this investment trust provides my retired clients with exposure to an index which has a proven track record for breeding successful disrupters. Not only does the trust provide a yield of 3.7% but it is also trading at a discount of 13%.”
Killik's Gilligan notes that income tends to be the main priority for retired investors and that several high yielding alternative income providers have seen their share prices fall sharply in recent years.
“The sell-off has been indiscriminate and there are some gems sparkling in the debris," he says. “Atrato Onsite Energy PLC (LSE:ROOF) is an example of such a gem. The company is the largest owner of commercial rooftop solar in the UK. It builds solar PV systems and supplies the power to large corporates. This helps customers achieve their net zero targets and it is done through power purchase agreements, meaning that the trust does not take any direct power price risk."
The Atrato Onsite shares yield 7.7% at the current share price which is at a 22% discount to net asset value. The dividend was raised 10% last year and has forward cover of 1.3x that he describes as healthy.
Evans also highlights the desire for investments with a consistent level of income with steady performance and relatively low volatility income that is often seen from those who are retired.
One such fund that can provide this is Alliance Trust PLC (LSE:ATST), she says.
“It is one of the oldest and largest UK investment trusts and invests primarily in global equities. Alliance has been one of the top dividend heroes amongst investment trusts with dividends increasing for 56 consecutive years with an annualised five-year dividend growth rate of 12.8%. It is also currently trading at a discount so would provide exceptional value.”
Binary's Sarwar says for retired investors wishing to avoid volatility in their later years, Personal Assets Trust (LSE:PNL), managed by the team at Troy Asset Management, is “a compelling investment".
“The trust has a consistent track record of returns and invests broadly, for example using physical gold typically as a large position, alongside a cluster of high conviction global equity holdings. UK and US bonds make up the rest of the portfolio. For inflation protection, and exposure to various investment assets in a risk-controlled manner, this is a very good trust for retired investors or indeed any investor.”