If you haven’t yet maximised your annual ISA allowance, then time is running out: the deadline to use (or lose) your £20,000 annual contribution allowance into the tax-free wrapper is on 5 April. If you haven’t used your full allowance, why not consider an investment trust?
From the 2027/28 tax year, ISA contributions become more complex, and stocks and shares ISAs could be a valuable tool as the cash ISA portion of the total allowance is falling to £12,000 in April.
But adding the right investment trusts to your portfolio could help you realise superior returns over time, especially given historical trends for stocks and shares ISAs to outperform cash in the long term.
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Investment trusts are a particularly useful investment to add to a stocks and shares ISA. They can borrow money to increase their exposure to promising investments, can often hold private companies, and can hold back up to 15% of returns in any given year which enables them to smooth out dividend payments over time.
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Some of the most reliable investment trusts have used methods like these to increase dividend payments to investors for over 20 consecutive years.
While some of the most popular trusts among DIY investors include the likes of Scottish Mortgage, Greencoat UK Wind and the City of London trust, these are five the experts say are also worth a look this ISA season.
A general investment trust for your ISA: Alliance Witan
Hal Cook, senior investment analyst at Hargreaves Lansdown, picks Alliance Witan (LON:ALW) out as a potential core component of an investment portfolio thanks to its broad global exposure and multi-manager approach which adds diversification.
“It could be used to diversify a portfolio that is focused on tech or the US, by bringing in more diversified globally invested shares,” said Cook. “Or it could be used to boost the growth potential of a defensively invested portfolio.”
Alliance Witan is also a dividend hero – one of twenty UK-listed investment trusts that have increased dividend payments for twenty or more consecutive years. In fact, it is one of the top three on this list, having increased payouts in each of the last 59 years.
A defensive investment trust for your ISA: Personal Assets Trust
Personal Assets (LON:PNL) is part of the MoneyWeek investment trust portfolio and is also one of Cook’s picks thanks to its defensive qualities.
“It’s likely best suited to investors who either have an adventurously invested portfolio (potentially where the only investments are shares) who want to reduce the potential drawdown risk or those investors who are naturally cautious and are focused on protecting their capital,” said Cook.
“Alternatively, the trust can be used to simply diversify an investment portfolio in a straightforward way that investors can understand – there are no complex derivative strategies employed here, with the managers only investing in bonds, shares and gold.”
An investment trust for all seasons: Ruffer Investment Company
The world is less certain, so there is a good case to be made for holding an investment trust that is designed to account for market ups and downs.
Ruffer Investment Company’s (LON:RICA) ‘all-weather’ approach “could prove useful for the year ahead amid a landscape of geopolitical uncertainty”, said Rob Morgan, chief investment analyst at Charles Stanley Direct.
“The managers, wary of valuations in many parts of the stock market, combine conventional asset classes – global equities, bonds, currencies and gold – with the use of derivatives strategies that serve as protection during market downturns,” said Morgan. “The overall aim is to protect as well as grow over the long term, so the balance of different elements is designed to pay off in a variety of economic scenarios – rather than take too much risk in one area.”
Morgan added that the differences between Ruffer and most other portfolios makes this a potential diversifier, or a more stable long term core holding for investors.
An investment trust for UK growth: Edinburgh Investment Trust
Edinburgh Investment Trust (LON:EDIN) focuses on UK company shares, with an aim of growing capital and increasing dividends.
“For investors who want income from their portfolio, the UK stock market is a good place to start due to the typically higher dividends paid compared to other stock markets,” said Cook. This means it could make a good addition to a portfolio invested for income, or a diversifier for a portfolio focused on capital growth which might be tilted towards the US and global tech companies.
An investment trust for UK small caps: BlackRock Smaller Companies
BlackRock Smaller Companies (LON:BRSC) is a potential contrarian play if you believe that UK small caps are due a rebound.
“While the UK market has outperformed in recent months, smaller companies have been left behind, unloved and under owned – and are under pressure again amid the current volatility,” said Morgan. “An opportunity perhaps to consider BlackRock Smaller Companies whose experienced team led by Roland Arnold is well placed to capture any UK small‑cap revival.”
Another dividend hero, the trust has increased dividends for the last 22 years under the team’s management.
“An entry point into the Trust is complicated by the proposed merger with stablemate Throgmorton,” says Morgan. “The plan seems sensible given the considerable overlap between the two, and there’s the prospect of lower fees and improved discount control mechanisms.
“Nonetheless, the prevailing double-digit discount provides a valuation buffer for shareholders.”
