One of the interesting nuggets to emerge from the news of surging numbers of ISA millionaires was that investment trusts seem to have been the fuel enabling a large proportion of this wealth to be accumulated by 'normal' investors.
In case you missed it, the UK's largest and second-largest investment platforms, Hargreaves Lansdown (HL) and Interactive Investor (ii), revealed that numbers of ISA millionaire customers had jumped 50%.
There were 973 millionaires on the HL platform and 983 on ii's, compared to 576 and 731 respectively a year earlier.
As well as the 'rules' by which most of these shrew operators go by, including investing as much as possible as early as possible in the tax year, a few things stood out to me, the first being that ISA millionaires on the ii platform have a much higher proportion of investment trusts in their portfolio than other funds, and also, tellingly, a noticeably higher proportion than non-millionaires.
No lack of trust
London-listed investment companies accounted for almost half (46%) of the average ISA millionaire account, compared to 38.3% for shares, 7.6% for open-ended funds (unit trusts) and 3.1% for trackers and exchange-traded funds.
For all customers, the average ISA account has 25.5% in investment trusts. ISA millionaires are also holding close to 50% less cash in their ISA accounts.
ISA millionaires are also holding almost 50% less cash in their ISA accounts than the average customer.
READ: Seven investment trusts offering portfolio diversification and inflation protection
At Hargreaves Lansdown, the data was presented slightly differently but trusts were still the most prominent investment, with 70.7% of ISA millionaires holding them in their portfolio, compared to just over 67% with shares, 61% with funds, 21% with trackers, 18.6% with ETFs and less than 1% with gilts or bonds.
Of course, these are based on the latest holdings in ISA accounts, so the millionaire may not have always had the same split between various types of investment, but they give as good an indication as is available.
The key reason why this bunch of self-made moneybags favours investment trusts is likely to be the unique characteristics that they offer.
Not only are investors getting access to the stock-picking abilities of some top fund managers, with the performance of the funds determined, like equities, by the market, but trust also have structural elements that can work to the advantage of long-term investors.
One of these is that they can use their cash reserves to pay dividends even in times of drought (as during the bonfire of the dividends in 2020) and perhaps the key is the ability to take on gearing, or borrowing, which can enhance returns in a rising market and in the long-term.
These characteristics are perhaps also why more financial advisers are also being won over by investment trusts, as shown by the record figures for last year.
Scottish Mortgage Investment Trust PLC (LSE:SMT) and Alliance Trust PLC (LSE:ATST) were among the top 10 holdings for the average ISA millionaires at ii, with Scottish Mortgage also features in HL's top 10.
READ: Can you guess the most popular trusts for ISA millionares
Research from the Association of Investment Companies (AIC) also showed that 30 investment trust could have made investors a millionaire - if the full annual ISA allowance had been invested assiduously in the same company each year.
Top five were HgCapital Trust (LSE:HGT), the aforementioned Scottish Mortgage, Allianz Technology Trust PLC (LSE:ATT), Pacific Horizon Investment Trust (LSE:PHI) and Polar Capital Technology Trust PLC (LSE:PCT).
Investing one's full allowance annually from 1999 to 2021 (£266,560) as well as reinvesting the dividends would have netted you a tax-free pot of over £1.5mln by the end of last month.
Others in the top 30 include Aberdeen Standard Asia Focus PLC (LSE:AAS), BlackRock Smaller Companies, BlackRock Throgmorton, Montanaro European Smaller Companies Trust PLC (LSE:MTE), Scottish Oriental Smaller, TR Property Investment Trust plc (LSE:TRY), 3i Group PLC (LSE:III), Rights & Issues, Canadian General Investments, Abrdn UK Smaller Companies Growth and Biotech Growth.