How to build an investment trusts ISA portfolio

What is an investment trusts ISA portfolio?

Put simply, it’s a portfolio of investment trusts, held within a stocks and shares ISA.

Any investment growth is protected from Capital Gains Tax and Dividend Tax within an ISA.

An investment trust is a publicly listed company that invests in other companies within a specific sector or industry. So, you can buy shares in a trust and benefit from the money they make from their investments. 

Investment trusts are actively managed. This means a professional fund manager has oversight of the trust and decides which investments to make based on their experience in the industry.

What are the benefits of an investment trusts ISA portfolio?

• Investment trusts tend to outperform funds thanks to various structural advantages
• Unlike funds, their ability to hold back 15% of income generated every year means trusts are much more consistent in raising or maintaining dividend payments.
• Trusts have a fixed pool of assets so managers are not distracted by money flowing in and out over the short-term.
• Investment trusts can gear – or borrow to invest. This can increase gains.
• Trusts are overseen by an independent board of directors that ensures they are managed in line with shareholder interests.

What are the risks of an investment trusts ISA portfolio?

• Investment trust performance tends to be more volatile than open-ended funds due to the ability to gear.
• If the market falls, gearing works against investors who may make greater losses per share.
• Trusts can trade on a premium, so you may be paying more than the asset is worth.
• Information about less commercially focused trusts can be difficult to find.
• Capital is at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

How to build an investment trusts ISA portfolio?

To build an investment trusts ISA portfolio, you simply need to choose which investment trusts you like based on your goals and values.

Since investment trusts can give you access to a particular sector or industry, you can choose whether to focus your portfolio on renewable energy, infrastructure, commercial property, private equity, or a sector as specific as biotech.

Be sure to set goals before choosing which trusts to invest in. Since they are actively managed, you can find out how your preferred trust’s manager invests funds – some chose to focus on income, others invest for growth, while some mix the two.