Fund Focus: do these investment trusts call for profit-taking?

Ask me where investors might have taken profits in 2026 and plenty of easy examples spring to mind (if in hindsight).

There’s gold when it was on a hot streak at the turn of the year, trusts like Scottish Mortgage Ord (LSE:SMT) and Seraphim Space Investment Trust Ord (LSE:SSIT) as the hype around Space Exploration Technologies Corp Class A (NASDAQ:SPCX) hit fever pitch in June, and portfolios riding the rally in Asia and the emerging markets.

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These are largely funds in racy, exciting parts of the investment universe where individuals will be tempted to run their winners but might do well to rebalance once in a while.

But it’s interesting to see that a group more associated with stability has performed so well. 

That’s the so-called core infrastructure investment trusts, which have delivered some strong returns in recent times.

Such funds will be well known to some investors: they hold fairly unglamorous assets, from motorways to hospitals and utilities, and seek to generate stable returns - even if that hasn't been the case in an era of rising interest rates. But recent performance has changed the equation for some.

Iain Scouller, an investment trust analyst at Canaccord Genuity, downgraded both 3i Infrastructure Ord (LSE:3IN) and International Public Partnerships Ord (LSE:INPP) to a “sell” rating last week on the back of some big gains over a short time frame.

He noted that 3i Infrastructure shares had made 15% over the course of just four months, with INPP rising by 10%, despite both portfolios seeing little change in their net asset value (NAV).

“We think this could reflect renewed interest in the sector from investors looking for companies with a reasonable yield, which are also able to generate dividend growth,” he wrote.

“However, we are not anticipating any significant NAV growth from either company on a six-month view and hence discounts have narrowed significantly. With gilt and bond yields remaining relatively high, we think it is unlikely that discount rates used in the portfolio valuations will fall meaningfully in the near term.”

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He meanwhile worries about the concentration of the portfolios, with the biggest five investments in 3IN accounting for 70% of the portfolio, and for about 50% of INPP.

Scouller argues that those focused on trading could take “sizeable” profits and potentially switch into HICL Infrastructure PLC Ord (LSE:HICL), which recently unveiled plans for future investments and whose shares trade on a double-digit discount.

Interestingly, he is not a lone voice.

Ben Mackie, senior fund manager at Hawksmoor Investment Management (a firm with a penchant for trusts) noted that HICL and INPP, which his team bought in the spring of 2025 on the back of wide discounts and attractive share price dividend yields, had returned 30% and 42%, respectively, since then.

This performance was aided by strong NAV returns but came with a narrowing in share price discounts (to 7% for INPP and 16% for HICL) and a compression of the yields on offer, to around 6% each. Mackie has argued that this limits the potential future returns.

Source: FE Analytics. Past performance is not a guide to future performance. 

As the table shows, some strong returns have come from across the sector in the last year, and investors may well be tempted to take profits either for its own sake, or because yields, discounts and the potential future profits now look less enticing.

There are, of course, some “easy” returns still to be locked in elsewhere – including in the bond market, where the UK 10-year gilt comes with a yield of around 5%.

As Mackie puts it: “For investments that have traditionally been viewed by a wide constituency of investors as yield plays, this compression poses challenges.

“If judged purely as bond proxies, there is a limit to how much further these trusts can re-rate given yields on a NAV basis offer no discernible pick-up versus those available from government bonds.”

A new normal

If the easy wins are gone, however, there might still be some appeal in such trusts. That’s the view the Hawksmoor team is taking, with Mackie pointing to the fact that such funds are evolving. 

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HICL recently set out plans to target an annual return of more than 10%. And while it already has a mix of yield and growth assets (having upped its exposure to the latter in recent years), the trust will now introduce higher-returning “enhancer” assets to boost returns.

INPP is on a similar path, having recently outlined a commitment (or investment) of almost £500 million to stronger-performing assets in recent years. The team has also seemed open to holding new assets via its investment in Sizewell C last year.

Having been more of a yield vehicle in the past, these trusts are focusing more on growth, putting them more in line with names such as 3i Infrastructure.

That still has plenty of appeal but might look less enticing to those who simply want to bag a substantial yield.