Top UK Investment Trusts – How to Invest and Maximise Returns

Investment trusts are a popular choice for UK investors looking to grow wealth, generate income, or diversify their portfolios. They offer professional fund management, exposure to various asset classes, and a long-term investment structure that appeals to both beginners and experienced investors.

This guide will explain what investment trusts are, how they work, their benefits and risks, and how to choose the right one for your investment goals.

1. What is an Investment Trust

An investment trust is a publicly traded company that pools money from multiple investors to buy a portfolio of assets, such as stocks, bonds, property, or alternative investments. Unlike unit trusts or open-ended funds, investment trusts are closed-ended, meaning they issue a fixed number of shares.

Investment trusts are listed on the London Stock Exchange and can be bought and sold like individual shares. Their share price is determined by market demand and supply, rather than the underlying value of the assets they hold.

2. How Investment Trusts Work

• Managed by a professional fund manager who selects and manages investments to meet the trust’s objectives.
• Closed-ended structure means a fixed number of shares, so the fund manager does not need to sell assets when investors sell shares.
• Net Asset Value, NAV, versus Market Price. The NAV reflects the total value of the trust’s assets, but shares may trade at a premium, above NAV, or a discount, below NAV.
• Income generation. Many investment trusts pay dividends, making them attractive for income-focused investors.

3. Benefits of Investing in Investment Trusts

Long-Term Performance

Investment trusts tend to outperform open-ended funds over the long term due to their ability to hold assets without forced selling during market downturns.

Diversification

Investment trusts invest in a broad range of assets, reducing risk compared to investing in individual stocks.

Dividends and Income

Many investment trusts have a strong track record of dividend payments, with some increasing dividends for decades.

Ability to Use Gearing, Leverage

Investment trusts can borrow money to invest, potentially boosting returns when markets rise. However, this also increases risk.

Discount Opportunities

If an investment trust trades at a discount to NAV, investors can buy assets at a lower price than their actual value.

4. Risks of Investment Trusts

Market Volatility

Share prices fluctuate based on investor demand and can trade at significant discounts or premiums to NAV.

Gearing Risks

Borrowing to invest can amplify losses if markets decline.

Liquidity Concerns

Some investment trusts, especially those focusing on niche markets, may have lower trading volumes, making it harder to buy or sell shares quickly.

5. Types of Investment Trusts

Equity Investment Trusts

• Invest in company shares
• Categories include UK, global, emerging markets, and sector-specific trusts

Property Investment Trusts

• Invest in commercial or residential property
• Generate rental income and potential capital appreciation

Infrastructure and Renewable Energy Trusts

• Invest in public infrastructure projects or green energy assets
• Offer stable long-term returns and inflation protection

Private Equity Investment Trusts

• Invest in private businesses not listed on stock exchanges
• Higher risk but potential for strong long-term growth

Income-Focused Investment Trusts

• Prioritise dividend payments for income-seeking investors
• Include trusts that invest in bonds, high-dividend stocks, or alternative assets

6. How to Choose an Investment Trust

Define Your Investment Goals

Are you looking for long-term growth, income, or diversification?

Check Performance and Fees

Look at the historical performance, management fees, and dividend history.

Understand the Discount or Premium

• A discount means the share price is lower than the NAV, which may indicate a buying opportunity.
• A premium suggests the share price is higher than the NAV, which may reduce future returns.

Assess Gearing Levels

Higher gearing increases risk but can also enhance returns in strong markets.

Research the Fund Manager

A strong track record of delivering returns is a key factor in choosing a trust.

7. How to Invest in Investment Trusts

• Stockbrokers and investment platforms. You can buy investment trust shares through online platforms like Hargreaves Lansdown, Interactive Investor, and AJ Bell.
• ISAs and SIPPs. Investment trusts can be held in tax-efficient accounts to protect returns from taxes.
• Regular investing. Some platforms allow investors to invest monthly in investment trusts.

8. Final Thoughts. Are Investment Trusts Right for You

Investment trusts offer a long-term investment opportunity with diversification, professional management, and strong income potential. However, they also carry risks such as market fluctuations and gearing exposure.

Before investing, research individual trusts carefully, consider your risk tolerance, and align your choices with your financial goals.

Would you like recommendations on top-performing investment trusts in the UK?