3-minute guide to investment trusts

It’s the start of a new year – and the perfect opportunity to consider adding exposure to different sectors and geographies to your overall portfolio. One possibility is opting for an investment trust. These products have been around for more than 150 years and offer plenty of potential benefits.

In this article, we look at the reasons to consider putting your money into one in 2025 – and highlight five trusts that are worth considering.

What is an investment trust?

Let’s start with a quick reminder. An investment trust is a company that’s listed and traded on the stock market in the same way as any other share. They are referred to as being closed-ended products, which means they only have a fixed number of shares in issue at any one time. Trusts are often favoured by income-seeking investors as many have consistently increased their dividend payments for more than two decades. The best have done so for almost 60 years!

Learn more: the key characteristics of an investment trust

Five benefits of investment trusts

• Potential for consistent income
• Longer-term focus
• Broader access
• Diversification
• Independent board

Potential for consistent income

Investment companies can hold back some of the income generated in positive years and pay it out during more challenging periods. This is called revenue reserves and is a unique feature of investment trusts, helping to smooth out returns for investors.

Longer-term focus

Their closed-ended structure enables managers to make longer-term decisions as their buying/selling decisions aren’t so influenced by inflows and outflows.

Broader access

Trusts can often access more specialist areas of the market, including private equity and infrastructure, as well as social and environmental impact investments.

Diversification

They enable investors to diversify their overall portfolios as each one will have exposure to a wide variety of assets, depending on their investment objectives. This approach helps spread your money across various asset types, helping add a layer of resilience to your investments.

Protection of interests

Trusts employ an independent board so that shareholders’ interests are represented. It meets several times a year and constantly monitors the manager’s performance. By holding management accountable, the board plays a crucial role in maintaining transparency and ensuring that your investment is handled responsibly.

Four trusts to consider

There are hundreds of investment trusts available – but which are worth considering? At FundCalibre all investment trusts we rate must pass our rigorous qualitative assessment. Here we spotlight four, across a range of asset classes, that could be worth a look.

Baillie Gifford Shin Nippon

This trust invests in smaller companies listed on the Japanese stock market and its name, ‘Shin Nippon’, means ‘new Japan’. This means its focus is on innovative emerging or disrupted sectors that could reasonably be viewed as offering exciting growth opportunities. However, it’s important that would-be investors understand there are risks associated with putting money into this area of the market. The aim of the trust is to achieve long-term capital growth by investing in between 40 and 80 attractively-valued smaller companies.

European Opportunities Trust

This trust offers investors access to a high-conviction portfolio of European equities and is run by the very experienced Alexander Darwall. He has demonstrated an ability to deliver excellent returns over the past two decades and we don’t see any reason why this can’t continue. The trust currently has broad country exposure which includes France, UK, Germany, Denmark, the Netherlands, Italy, Sweden and Spain*. In his latest letter to investors, Alexander pointed out that Donald Trump’s inauguration as President will focus attention on tariffs and other policies: “We expect our companies to benefit from higher growth rates in the US and are sanguine about the threat to our portfolio companies of tariffs”.

Polar Capital Global Healthcare Trust

There are more specialist trusts available and this is one to consider for anyone wanting exposure to pharmaceuticals, biotechnology and other healthcare services. This trust is an actively managed, global portfolio that seeks the best growth opportunities it can find within a rapidly developing industry. Generally, it will hold between 25 and 60 such stocks. Unsurprisingly, their largest individual positions include household names such as UnitedHealth Group, Eli Lilly & Co, Novo Nordisk and Sanofi*.

Despite healthcare spending much of 2024 out of favour, the management team is optimist for the year ahead: “With the industry’s innovation engine continuing to bear fruit, the demand for healthcare products and services continuing unabated and relative valuations starting to look really attractive, the near-term volatility has created a compelling, medium-term investment opportunity.”

Scottish Mortgage Investment Trust

Our final suggestion is a trust that dates back to the early 1900s and aims to “identify, own and support” the world’s most exceptional growth companies. The trust’s objectives are to maximise returns over the long term, while enabling shareholders to benefit from today’s transformational growth opportunities. Amazon, MercadoLibre, NVIDIA, Tesla, Ferrari and Spotify are among the most instantly recognisable names in the portfolio*. We like how its fund managers, Tom Slater and Lawrence Burns, can take a high-conviction approach by having up to 30% of the portfolio in unlisted companies. While such an approach won’t be suitable for more cautious investors, this trust could be worth considering by anyone wanting higher global growth prospects.

Learn more: 3 ways to use an investment trust in your portfolio

*Source: fund factsheet, 30 November 2024