Interactive Investor

Investment trust ISA ideas for young, middle-aged and retired investors

15th March 2023 10:27

by Sam Benstead from interactive investor

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Risk appetite and age go hand in hand. Sam Benstead looks into different investment trust ideas for different age groups. 

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With less than a month before the new tax year begins, and with it a £20,000 ISA allowance, now is a great time to be thinking about where to invest.

Investment trusts are always popular with ISA investors – but particularly the wealthiest cohort. In fact, interactive investor customer data shows that ISA millionaires have twice as much investment trust exposure compared with less wealthy investors.

Structured as companies, investment trusts have the advantage of being able to borrow to increase returns, and can also be picked up at discounts to the value of their underlying investments, known as the net asset value or NAV.

Here are some investment trust ideas, picked by financial advisers, for your ISA.

Younger investors

Younger investors generally have more time than older investors if they are saving for retirement, which means they are free to take more risk. While volatility may be greater, investment returns over the long run should also be higher.

Paul Chilver, financial planning manager at Birkett Long, says younger investors could look to Asia for opportunities. Chilver says: “My first suggestion is an Asian smaller companies investment trust: Fidelity Asian Values. This has an excellent long-term track record and is well diversified with its highest weightings to Chinese, Indian and Indonesian equities.”

His second suggestion is closer to home: UK shares. Chilver reckons the bounce-back in UK shares is set to continue, and smaller companies are best placed to lead the charts.

His pick here is the five-year-old Odyssean Investment Trust. Its strategy is to invest in a concentrated portfolio of well-researched quoted UK smaller companies, typically too small for inclusion in the FTSE 250.

Chilver says: “Despite some of the (recent) losses experienced by many UK smaller companies investment trusts, this one is showing an excellent track record.”

For younger investors after a one-stop shop for equities, F&C Investment Trust, a member of interactive investor’s Super 60 investment ideas, could be a strong option.

Jim Harrison, director at financial planner Master Adviser, says: “Assuming there is no immediate call on the capital, investors at this stage have theoretically the longest investment horizon, and therefore can afford to take more risk.

“They can take a longer-term view, and look for a broad spread of underlying assets, so the F&C investment trust, which knows all about longevity, could be a good fit here. It is a global trust with more than 350 underlying stocks and gives exposure to unlisted securities and private equity.”

Middle-aged investors

Although middle-aged investors are still in the capital growth stage of their investment journey, they are likely to have one eye on retirement and could be starting to prepare their portfolios for income generation rather than growth.

Harrison says starting to buy an income stream now, and reinvesting dividends until they are needed, is a good alternative to the growth-only option.

He says that Dunedin Income Growth, whose benchmark is the FTSE All-Share, is a trust to consider.

“A healthy dividend yield of 4.3%, rock solid dividend cover of 1.24 years, and a board who are focused on the sustainability of that dividend should give a long-term investor great comfort,” he adds.

For international exposure, Harrison says Murray International Murray International (LSE:MYI) should be in every investor’s portfolio, not just the middle-aged. The global trust, which has a bias towards Asia-Pacific and emerging markets, is a member of interactive investor’s Super 60.

“An above average dividend yield at 4.1%, almost a full year’s revenue reserves, and capital growth in addition to the dividends make this an attractive choice,” says Harrison.

Daniel Lockyer, senior fund manager at Hawksmoor Fund Managers, says Aberforth Smaller Companies, is a trust to consider.

Lockyer points out that the managers have invested with the same value style since the trust launched in 1990.

He adds: “In recent years, growth-biased funds have offered superior returns, largely thanks to near-zero interest rates, but we now believe the value style will come back into favour. The portfolio is trading on record low valuations not seen since the depths of the financial crisis and the trust’s shares can currently be bought at an 11% discount and a 3.5% yield.”

Genevra Banszky von Ambroz, investment manager at wealth group Evelyn Partners, says for investors looking to own all sizes of UK companies, and generate an income, Diverse Income Trust fits the bill. This is another trust that’s in interactive investor’s Super 60 list.

“Managers Gervais Williams and Martin Turner have an excellent track record of delivering over the longer term, primarily through fundamental stock-picking, but they have also been savvy in terms of protecting the portfolio from the worst of the market drawdowns with the use of put options when appropriate,” she said.

Retiree in the UK 600

Retired investors

With no employment-related income, many retirees will be looking to their investments to supplement any pension income they might have. For von Ambroz, this means investment trusts focused on income and capital preservation are the right fit.

She says International Public Partnerships, which owns a diversified portfolio of infrastructure projects across the UK, Europe, North America and Australia and yields 5%, is a strong option.

“Its underlying assets have strong inflation correlation and support an attractive covered dividend,” she said.

For capital preservation, she suggests Capital Gearing , which has been managed by Peter Spiller since 1982, and now has two other co-managers, Alastair Laing and Chris Clothier. It is also in our Super 60 list.

“The character of the company remains very much the same, a conservatively managed portfolio of conventional and index-linked government bonds, corporate bonds, preference shares, equities and funds, with strong representation from investment companies,” she said.

Lockyer also suggests a “real assets” trust: Gresham House Energy Storage. It owns battery facilities and sells power to the UK electricity grid. It currently yields 4.3%.

He says: “The transition to net zero over the coming decades requires a huge increase in renewable energy generation, but that can’t happen without accompanying battery storage solutions. Gresham House Energy Storage is the largest developer and operator of battery storage sites in the UK and is well placed to deliver its annual target total return of 10%, of which around half is currently in income.”

For retired investors looking for income from equities, Chilver suggests Edinburgh Investment Trust for UK shares and Securities Trust of Scotland for international shares.

“Edinburgh Investment Trust has had excellent performance since the management team was changed in early 2020. The trust currently pays an attractive dividend yield of 3.8%.

“Securities Trust of Scotland is in the global equity income sector and targets a rising dividend. The trust is managed by James Harries of Troy Asset Management who has a long track record investing in global equities with an income objective. The current yield is 2.7%.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Please remember, investment value can go up or down and you could get back less than you invest. If you’re in any doubt about the suitability of a stocks & shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.

Related Categories

    Investment TrustsSuper 60ISAsBonds and giltsUK sharesEmerging marketsJapan

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