The trusts to buy depending on what you need

Private investors can have a wide range of priorities. Some might be looking for aggressive growth, others will need income for retirement, and others will be firmly focused on protecting their wealth. Thanks to their flexibility and wide range of underlying assets, investment trusts can be used to build different portfolios for different needs.

But depending on your goal, you may have a wider or narrower range of options to choose from in the investment trust world. Rob Morgan, chief investment analyst at Charles Stanley, argues that if growth is your main focus, investment trusts offer plenty, while the landscape is slightly more nuanced for income and capital preservation.

On the growth front, you can access all the main equity regions. There are global generalist investment trusts, such as F&C Investment Trust (FCIT), or ones with more specific geographical remits, from the US to emerging markets to Europe – examples here include JPMorgan American (JAM), Templeton Emerging Markets (TEM) and Fidelity European (FEV), respectively. You can also use trusts to dip into racier areas of investing, via country specialists such as Ashoka India Equity (AIE) or the likes of 'growth capital' trusts. And if despite the struggles of the past two years you still back Baillie Gifford’s all-out growth stance, you can gain exposure via various trusts, from the high-profile Scottish Mortgage (SMT) to less well-known options such as Baillie Gifford US Growth (USA).

If generating a stable income is your main target, investment trusts have pros and cons. Thanks to their ability to put aside revenue reserves, they can pay and grow their dividends even if the companies in which they invest need to suspend them, a feature that came especially handy during the pandemic. The Association of Investment Companies (AIC) keeps track of the trusts that have increased their dividends every year for more than a decade. These span a number of sectors, including less obvious ones for income generation, such as global and UK smaller companies. Some trusts investing in illiquid assets, particularly within the infrastructure and renewable energy sectors, are also solid options for attractive, reliable dividends. 

Doug Brodie, founder and chief executive of retirement planning firm Chancery Lane, argues that investment trusts are an excellent vehicle for retirees who rely on their investments for their income. They can use them to build a portfolio that generates stable and growing dividends, which matches their need for a regular income to pay their bills that keep up with inflation.

But now that interest rates have increased, you might want to include some bonds, and this is an area where open-ended funds have the upper hand. “You have less choice there because there are only a small number of bond investment trusts, and they are concentrated in the more esoteric areas,” says Morgan. 

The third type of investment objective, capital preservation, is perhaps the trickiest to achieve by relying exclusively on investment trusts. Morgan notes that because of their structure, trusts tend to be comparatively volatile – they trade as listed equities even when their underlying holdings are not, and can often be impacted by what is happening on the rest of the London Stock Exchange.

However, there are still a few options, namely Ruffer Investment Company (RICA), RIT Capital Partners (RCP), Capital Gearing Trust (CGT) and Personal Assets Trust (PNL). RICA is typically the most conservative of the lot, albeit after holding up well in 2022 it has struggled in the past year or so due to its managers calling the timing of a recession wrong. RIT Capital has been the most volatile of the group in the past couple of years, partly due to investors questioning its high exposure to unlisted assets, and is trading on a much higher discount than the other three – 23.5 per cent as of 16 May. However, it has recently staged a notable recovery, with its share price up 7.1 per cent in the month to 15 May. 

Read more in our 'How to use investment trusts' series

Why investment trusts are useful for investors

The trusts to buy depending on what you need    

How to pick the best investment trusts

Finding the right trusts for your portfolio

Supported by AllianzGI Investment Trusts