Data from ii suggests the nation’s wealthiest have a secret weapon – investment trusts.
- Investment trusts power ii ISA millionaire portfolios
- There are currently 395 ISA millionaires on interactive investor, with an average age of 72
Have you ever wondered how ISA millionaires invest and make their money work harder for them?
Data from interactive investor, the UK’s second largest investment platform, suggests the nation’s wealthiest have a secret weapon – investment trusts.
Almost half (46%) of the average ISA millionaire account is powered by investment trusts, with funds accounting for just 7%. Alliance Trust (LSE:ATST), Scottish Mortgage (LSE:SMT), Witan (LSE:WTAN), City of London (LSE:CTY) and Law Debenture Corporation (LSE:LWDB) are the most popular trusts.
Amongst direct equities, it’s the blue-chip dividend payers that are leading the pack - Royal Dutch Shell (LSE:RDSB), GlaxoSmithKline (LSE:GSK), Lloyds Banking Group (LSE:LLOY), BP (LSE:BP.) and National Grid (LSE:NG.).
Rebecca O’Keeffe, Head of Investment, interactive investor, says: “It is interesting to look inside the portfolios of the nation’s wealthiest. Obviously, today’s ISA millionaires will have had the luxury of being able to utilise their ISA allowance each year, and with an average age of 72, most of them would have started off with Personal Equity Plans (PEPs), which predate ISAs. So, if there is one thing that we can learn from ISA millionaires – whatever our budget – it is the benefit of patience and the fact that time is an investor’s best friend.
“But from an investment perspective, the significant proportion of holdings in investment trusts is the standout point. Investment trusts are often overlooked in favour of open-ended funds. While ii have long appreciated the benefits of all types of investment, trusts have traditionally not appeared on other high profile rated lists (a serious oversight that needs rectifying), which may in part explain why they are less popular in general.
“However, for those in the know, they are a highly attractive option. They won’t always outperform funds, and in a falling market they will tend to lag behind, but over the long-term they have a track record of adding significant value. Outperformance of one or two percentage points a year might not sound like a lot, but the compound effect of this annual additional return as the years roll by can make a huge difference.”
Investment trusts versus funds – in figures
Investment trusts have tended to outperform funds over the long term (although there are no guarantees for the future). The average UK All Companies investment trust has outperformed its fund equivalent by 1.8% a year over the last decade*. The average Global investment trust has beaten its fund equivalent by nearly 1.5% per annum over the same period*. (see notes to editors).
Rebecca O’Keeffe continues: “Some people may claim that the 10-year figures for investment trusts flatter the sector as discounts had widened during the financial crash and they have tightened in the past 10 years of a bull market – and this is absolutely true. However, the outperformance of investment trusts also extends to 15 and 20 years. The structure of trusts and their ability to use gearing also contribute to a way of generating additional returns. However, it is also true to say that there are times when investment trusts underperform. Volatile markets tend to see the sector fall disproportionately, so as always with investing, it is buyer beware.”
interactive investor ISA Millionaires versus average interactive investor ISA portfolio
|Asset type||% average ISA millionaire portfolio||% average ISA account|
|Exchange Traded Product (ETP)||3%||4.50%|
interactive investor ISA millionaires make 24 trades in a year on average, with an average trade size of £23,602. The average ISA customer on the ii platform trades 9 times over the same time period, with an average trade size of £6,130. The average ISA millionaire has 28 lines of stock versus 8 for the average ISA account.
How long could it take to become an ISA millionaire?
The length of time it takes to become an ISA millionaire is determined by the amount you can invest and your investment return.
Were you to start now and invest the full £20,000 annual ISA allowance (assuming it stays the same), and your investment saw 5% annual growth excluding fees, it would take 25 years to reach the £1million mark - £1,002,269.08 to be exact.
If your investments grew by 7% net of fees, you could trim three years off that period, achieving £1,048,722.82 in 22 years. But if your investment experienced annual growth of just 3%, it would take 31 years to reach the seven-figure sum (£1,030,055.17).
Rebecca O’Keeffe says: “Most of us won’t get to be an ISA millionaire, but there is no harm in aspiring to good things. The key is to get started as early as possible and try to invest the maximum amount you can afford. You also need to try and find the right balance of investments where you take enough risk over the long term but are still able to sleep at night.
“Not everyone will want investment trusts to take up almost half of their portfolio. And only experienced investors are likely to want direct equities to take up a large slice of their portfolio too – so it’s important to find the right approach for your personal circumstances. This could be looking at the overall balance of your portfolio or drip-feeding money into your ISA on a monthly basis and this year, we have introduced free monthly investing.
“There are a range of places to get ideas and find starter investments, including rated or quick start lists. You can also look at global tracker funds, which can spread your risk across a range of global markets – and many of these options offer different levels of risk to suit individual preferences.”
Top 10 most held instruments by average interactive investor ISA millionaire (in rank order)
|Royal Dutch Shell (LSE:RDSB)|
|Scottish Mortgage (LSE:SMT)|
|Lloyds Banking Group (LSE:LLOY)|
|National Grid (LSE:NG.)|
Most popular investments held by interactive investor ISA millionaires
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.