Fund Focus: the investment trusts upping their gearing

Having existed since 1868, the investment trust might seem liked a storied vehicle - if not an antiquated one. But it can still give you punchier returns than an open-ended fund in a number of ways.

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Investment trust managers often have the flexibility to build more concentrated portfolios while backing less liquid, more esoteric assets, for one.

And on a more basic level they can use gearing, or debt, to juice their returns. This explains why trusts can be more volatile than open-ended funds, but sometimes generate greater long-term returns.

Gearing in particular is a double-edged sword, because it can enhance your losses as well as your gains. But a highly geared trust offers you a pretty high-conviction bet, and if a manager has taken on more debt, it could indicate their confidence in the outlook for future returns.

The first quarter of 2026 has been pretty gruelling thanks to the outbreak of conflict in the Middle East in late February and the attendant market sell-off, so it takes a strong stomach to bet big on your portfolio. But interestingly some trust managers do appear to have done that in recent months.

Which trusts have upped their gearing?

Data provided to us by the Association of Investment Companies (AIC) shows some of the big moves in gearing between the start of 2026 and the end of March, with our table highlighting 10 names that seem to have made increases over that period.

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That might indicate a more bullish investment team, although some caveats are worth remembering.

Gearing is expressed as a proportion of the trust’s assets, meaning that if those assets fall in value the gearing can sit on a bigger weighting.

We have therefore looked for cases where the actual amount of debt has increased – although this and a fluctuation in the asset value will affect the ultimate figure. Other factors, such as fluctuating cash levels, can also sometimes affect stated gearing figures, meaning fund commentaries are worth examining to get a fuller picture of whether the managers are expressing optimism about future returns.

Source: AIC.

So, what’s cropping up on the list? We have International Biotechnology Ord (LSE:IBT), which has had a phenomenal time as of late with share price total returns of more than 100% over 12 months.

That fund has seen its gearing jump from barely anything at the turn of the year into the double digits at the end of March, and data shows that its debt levels have increased in a pure monetary sense rather than just as a proportion of assets.

If the team is getting more confident, it may well be buoyed not just by the recent recovery for its sector but also the sheer level of merger and acquisition activity going on right now.

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IBT recently announced that its top holding, Soleno Therapeutics Inc (NASDAQ:SLNO), had agreed to sell itself for $2.9 billion (£2.2 billion) as part of “frenetic” M&A in the sector.

The trust’s RNS feed currently reads like a list of such sales, with announcements from March pointing to other holdings Apellis Pharmaceuticals Inc (NASDAQ:APLS) and Terns Pharmaceuticals Inc Ordinary Shares (NASDAQ:TERN) also set to get bought out.

It’s notable that another name from its sector, Polar Capital Glb Healthcare Ord (LSE:PCGH), appears to have taken around 5% of gearing, having had nothing at the start of the year. If any recovery continues, that could prove fortuitous.

From commodities to Europe

A couple of natural resources plays, in the form of BlackRock World Mining Trust Ord (LSE:BRWM) and BlackRock Energy and Resources Inc (LSE:BERI), have seen some gearing increases over this three-month period, with BRWM shares offering gearing of 8.5%.

Both have been exposed to some massive moves, especially in March.

BlackRock World Mining has a lot of exposure to gold miners, which experienced plenty of pain in the sell-off. That helps to explain why the trust’s shareholders lost around 14.5% in that single month. BERI, which has some exposure to “traditional” energy such as oil, has looked more steady.

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We otherwise see a topical name, The European Smaller Companies Trust PLC (LSE:ESCT), boosting its gearing level over the first quarter.

That trust has seen a lot in recent years, from its role in the initial Saba activist campaign to its merger with the European Assets trust, and a 12-month stretch that has seen the shares return more than 30%.

A couple of other small-cap names crop up, in the form of the activist fund AVI Japan Opportunity Ord (LSE:AJOT)andMontanaro UK Smaller Companies Ord (LSE:MTU).

It’s always worth scanning fund commentaries to ask whether the team does seem especially bullish. But even in a rough quarter, some trusts seem to have grown a little punchier.