4 investment trusts for your ISA this year

Staci West 22/03/2023

Investment trusts have been around for more than 150 years — and their unique qualities make them attractive to a variety of investors. If you’re thinking about putting your money into an investment trust this ISA season, we’ve got four suggestions for you including Fidelity Special Values, City of London Investment Trust, TR Property and European Opportunities Trust.

Staci West (SW): Investment trusts have been around for more than 150 years — and their unique qualities make them attractive to a variety of investors.

Investment trusts are very similar to ‘funds’, in that investors’ cash is pooled and can be put to work across a wide range of areas, including other companies and alternative asset classes.

But they are also companies in their own right that are listed and traded on the London Stock Market in the same way as if you held shares in corporate giants such as BP or Shell.

They also have extra characteristics including an independent board, revenue reserves, premiums and discounts, gearing and are close-ended. If you want to learn more about these characteristics, watch our short video series “Guide to Investment Trusts”.

If you’re thinking about putting your money into an investment trust this ISA season, we’ve got four suggestions for you.

Those investors looking to add UK equities to their portfolio might consider the Fidelity Special Values trust. It invests primarily in unloved UK companies and waits for them to come back into favour. The fund’s contrarian approach could make it a good diversifier in your ISA portfolio. The trust’s manager Alex Wright, told us more about the current opportunity for investors:

Alex Wright: “I think it’s a really good place to start to look for UK equities this year because the discount versus both history and other markets is historically wide. And also, you’ve seen some pretty good fundamentals from the UK market. So, decent earnings growth coming out of the more traditional industries compared to some quite clear problems in markets that have done really well recently, like technology.

So, the UK gives you quite good diversification compared to actually where a lot of your other investments may be. Particularly outside of what is a really dominant US market. So, I think it is a really good diversifier with good companies at low valuations, and the trust has been trading at bigger discounts than history recently as well. So, you can get into those companies that are at a discount actually to the NAV [Net Added Value] as well in the trust.”

SW: Another benefit of the UK stock market is that many of its companies pay a dividend, which can be attractive for investors that want to produce an income. The City of London Investment Trust, is one of the longest-running investment trusts in the UK and has increased its dividend payment every year for the past 56 years. Manager Job Curtis, tells us more about the dividend landscape today.

Jub Curtis: “Well, if you look back at 2020 — March 2020/April 2020 — there was a dramatic moment for dividends because a lot of companies just had to stop paying the dividends. Their businesses were shut down with the economy.

But I think it also gave quite a few companies a smoke screen, so many dividend cuts going on, that they were able to sort of, companies that have previously been kind of overpaying on the dividends. It gave them an opportunity to sort of reset back to a more sensible level. And from then, from that period, we’ve had a very good recovery in 2021 and 2022 in dividends in the market.

But I would still say that the UK market is on a much firmer base for dividends than it was. I don’t see around companies that are kind of so obviously over distributing as they were pre 2020 period. So I think going forward you’ve had the sort of easy part of recovery and dividends and I think it’s now kind of more of a kind of a low single digit type of growth world for dividends.

And I think there are overall you know, apart from sort of certain areas of the market, I would see dividend outlook look has been quite resilient.”

SW: Those who take a core/satellite approach to their portfolio might consider a specialist trust such as TR Property. This trust invests in the shares of property companies of all sizes, typically within Europe and the UK. The manager looks for well-run businesses in sectors – not just offices or retail but also the likes of self-storage, nursing homes, student accommodation, last mile logistics, primary healthcare and business parks.

After a difficult year for property equities, trust manager Marcus Phayre-Mudge, remains optimistic on the future of the asset class.

Marcus Phayre-Mudge: “First of all, anyone stepping in now, after we’ve seen a huge value correction … what drove that was really an increase in the cost of money. And that has been hugely reflected in the price of the underlying companies that we invest in, which are now collectively trading at about a 25% discount to their revised asset values – the asset values have come down and the shares are trading at discount to that. On top of that, TR Property is itself trading at an 8% discount to that figure, so it’s like a discount on a discount.

And then, of course, the other thing you should always remember with property is, it’s a value proposition, and a lot of it is about income. We are very confident about a lot of the income that we’re getting. Much of our investment is in Europe where we’re collecting indexation, which is, of course, as inflation is sustained, these rents are rising.

So, in summary, you’re buying on a discount, after a very difficult year.”

SW: Lastly, we have the European Opportunities Trust. This trust offers investors access to a high conviction portfolio of European equities with a bias towards medium and larger companies. The manager has developed a consistent investment process that has a record of success in different economic environments. Manager Alexander Darwall had this to say:

Alexander Darwall: “Look, we just do the best we can, we do the best we can. We invest in a responsible way. We’re very open about what we do. We’re totally consistent: what we tell you we do is what we do. And it’s the same story, time and time [again]

It’s really up to your viewers. I’m sure they can make up their own minds, but we very much enjoy this kind of investment process. We do our best to engage with companies. We like companies that behave well and they produce goods and services that people around the world want to buy, that’s what good investment is all about. We’re long-term investors and if that suits your ISA well, I’m delighted, but if it doesn’t, I respect that just as much.”

SW: You heard him, the choice is yours. Whether or not you consider investments trusts in your ISA this year will depend on your own preferences but if you’d like to learn more about the differences and benefits of investment trusts — or to research all Elite Rated investment trusts — visit fundcalibre.com

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.