Last-minute Isa shopping? Here are 7 investment trusts to consider
With the stocks and shares Individual Savings Account (Isa) deadline approaching this week, Rupert Hargreaves rounds up seven investment trusts you may want to consider.
The stocks and shares Individual Savings Account (Isa) deadline for the 2021/22 tax year is 5th April 2022. Investors have until midnight of 5 April to use as much of their £20,000 annual allowance as possible.
As this is a “use it or lose it” allowance, any unused allocation is not rolled over into the 2022/23 tax year. However, there's no requirement to invest this cash before the deadline.
As long as the money is in the account before the cut-off, investors can take their time to find opportunities.
Understandably, many investors might not be in a position to use the whole allowance every year. The latest figures available from HMRC show that in the 2017/18 tax year, 44% of savers put away between £1 and £2,499. Still, the tax benefits of Isas and the fact that withdrawals are not limited mean that, whatever your financial situation, it makes sense to save in one of these tax-efficient accounts.
And if you’re looking for ideas as to what to put in them, the investment trust sector offers a fertile hunting ground.
Why investment trusts?
There are over 600 investment trusts available to investors in the UK. Unlike “open-ended” investment funds like unit trusts or Oeics, investment trusts trade on the stock exchange. This means that the share price of the trust can diverge from the value of the underlying portfolio (this is known as trading at a premium or discount to net asset value, or NAV).
This “closed-end” structure means that investment trust managers have a fixed pool of capital to invest with. This in turn means they can take a longer-term view and also more easily hold non-traditional or illiquid assets than managers of open-ended funds, who have to maintain sufficient liquidity in the portfolio to meet redemptions if necessary.
Digital 9 Infrastructure (LSE: DGI9) is a great example of the flexibility an investment trust structure can offer. The trust raised £300m last year to invest in a range of assets to help "deliver, inter alia, a reliable, functioning internet." So far, the firm has acquired several interests in subsea fibre cables and data centres. It is targeting a 6p per share annual dividend to begin with and a progressive dividend policy. Based on this target, the trust supports a yield of 5.4%.
Digital 9 is one of the few ways investors can build exposure to this specialist sector and could be suitable for both income and growth investors. But if subsea fibre cables and data centres are not your thing, there are hundreds of other options out there to choose from.
Generating an income from UK equities
One of the biggest and most popular UK equity income trusts is the City of London Investment Trust (LSE: CTY). The trust owns a selection of some of the UK’s top blue-chip income stocks. The top holdings are cigarette group British American Tobacco, drinks group Diageo and oil major Shell (as you may have guessed, it’s not an ESG trust). It yields 4.6% and has consistently paid and increased its payout for more than five decades now.
A MoneyWeek favourite in the UK equity income space is the Law Debenture Trust (LSE: LWDB). This trust has a unique structure in that it operates a professional services company alongside the investment portfolio. The division provides services such as pension and whistleblower management for other corporations, bringing in a steady, recurring income stream. This also gives the firm’s portfolio managers more flexibility. They can look outside the traditional UK equity income space when hunting for opportunities.
Thanks in part to this structure, although its dividend yield of 2.8% is not the highest around, the stock has produced a total return of 200% over the past ten years, outperforming the FTSE All-Share Index’s 94.9%.
The UK equity market only constitutes a small fraction of the global equity market. As such, building exposure to international equities makes a lot of sense for most investors. International trusts are a great way to build exposure to these markets.
JPMorgan Global Growth & Income (LSE: JGGI) seeks out income and growth stocks around the world. Some of the largest holdings in the portfolio are the high-flying tech stocks Amazon.com, Alphabet and Microsoft. Last year it paid a total dividend of 13.16p per share, which, if repeated, gives the trust a yield of 2.9%.
Murray International Income (LSE: MYI) is another international income trust with a flexible mandate. It invests principally in global equities, but it also owns a portfolio of fixed income assets. Its equity portfolio is incredibly diverse. Just 5.5% is allocated to the UK. Nearly half of the firm’s portfolio is allocated to securities in Asia and Latin America. At the current share price, the trust yields 4.6%.
Specialist options to protect wealth and invest in health
RIT Capital Partners (LSE: RCP) – another constituent of the MoneyWeek model investment trust portfolio, alongside Law Debenture – has been publicly traded since 1988. Since its inception, the trust has produced a total return of 12.4% a year for its shareholders. The firm’s overriding aim is to protect and enhance shareholders’ wealth.
It does this by investing in a diverse portfolio of assets, from private companies to equities and hedge funds. While income investors might be put off by the trust’s relatively low 1.5% yield, for those looking to protect their wealth, RIT certainly has a great record of doing just that.
Finally, Life Sciences REIT (LSE: LABS) is another great example of how investment trusts can help individual investors build exposure to unique assets. Launched last year, the trust is seeking to generate an income for investors of 4–5% a year as part of a 10% target net asset value (NAV) return. It focuses on properties in the so-called life science "Golden Triangle" of Oxford, Cambridge and London. Since its IPO in November, it has completed five acquisitions, totalling nine individual properties, for a total value of £184.2m.
(Disclosure: I own shares in Law Debenture Trust and JPMorgan Global Growth & Income)