The best investment trusts

Here's yet more proof that cheaper investment trusts outperform more expensive unit trusts, says Merryn Somerset Webb. But which are the trusts to put your money in now?

I wrote a piece last week about my own investments. Along the way I mentioned that I mostly invest in investment trusts. I do so because they are generally cheaper than unit trusts and they also tend, over time, to perform better.

For those in any doubt of this, The Sunday Times had a neat little comparison of investment trusts and unit trusts run by the same managers this week.

Take Invesco's Neil Woodford. He runs the Invesco Perpetual High Income Fund and the Edinburgh Investment Trust. Over the last three years, his unit trust has returned 58% on an annual management fee of 1.5%. His investment trust has returned 100% on 0.7%.

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Harry Nimmo has a similar record. He runs a unit trust and an investment trust. They are both called Standard Life UK Smaller Companies, but the unit trust has returned 111% on a fee of 1.6% while the investment trust has returned 152% on a 0.8% fee.

Overall, the 16 equity-focused investment trusts have beaten their unit-trust equivalents by around 4% a year for the last ten years. Given this (and assuming that extrapolating it is not completely insane), it clearly makes sense to pay more attention to investment trusts than most people do.

A good many of you emailed me in response to the original column to ask which trusts might make up a good portfolio. We try to ensure that whenever we write about an asset area we suggest suitable options. As luck would have it, Alan Brierley of Canaccord Genuity has just released a pretty comprehensive report looking at the 25 biggest trusts currently listed in Britain.

His top picks include Alliance Trust, RIT Capital, Scottish Mortgage, BH Macro, Blackrock World Mining, Murray International, Edinburgh, Monks, UK Commercial Property, British Empire, Genesis Emerging and Aberforth Smaller Companies. I'm not in the mood to invest much in the way of mining and emerging markets at the moment, but that aside, I can't see much here to argue with. They are all good trusts.

Others I might add to the list include Personal Assets (a long-term favourite) and, for those who want technology exposure, Polar Capital Technology. I also like City of London, which does much the same as some of the others, but comes with a yield of 4.6% and over 40 years of dividend growth behind it.

One smaller trust for those after an income is the Troy Income & Growth Trust (it yields 3.6%). For those wanting more income (and more risk) there is Ecofin Water & Power, which invests in international infrastructure and utilities. We're now planning to create our own core portfolio list of investment trusts I'll let you know when we have.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.