Investment trusts offer a huge range of investment possibilities, and are a great way for beginner investors to get their money working harder for them over the long term.
Anyone getting started in investing will likely be intrigued by the concept of investment trusts. There is, on the face of it, a lot to learn, from whether or not to worry about discounts to how different trusts use gearing.
But for beginner investors, investment trusts can be boiled down to fairly simple fundamentals. They are a form of active fund that trades on a stock exchange, just like a stock. In fact, they are stocks – each investment trust is a listed company in its own right.
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“Investment trusts offer diversified portfolios and many have long records of preserving and growing the value of people’s savings,” says Nick Brotton, research director at the Association of Investment Companies (AIC), an industry body that represents nearly 300 investment trusts.
“Many trusts make great first-time investments whether you’re looking for income, growth or a mixture of the two,” he adds.
UK investment trusts for beginners
Beginner investors who want to use investment trusts to gain exposure to the UK market could consider one of these for their portfolio.
City of London Investment Trust
City of London (LON:CTY) is one of the AIC’s dividend heroes, meaning that it has increased its dividend payout every year for 20 consecutive years.
It is over 100 years old, and manager Job Curtis has run the fund for 34 years, favouring “good quality, well-managed companies, bought at reasonable share prices”, says Emma Wall, head of platform investments at Hargreaves Lansdown.
“A new investor may want to consider an investment trust with a long track record and a manager who has been at the helm through many economic cycles,” said Paul Chilver, director and financial planning manager at Birkett Long IFA. “The City of London Investment Trust ticks both these boxes.”
Chilver added that City of London’s focus on well-known FTSE 100 stocks would be reassuring to beginner investors.
Fidelity Special Values
For a broader play on the UK’s stock market beginner investors could consider Fidelity Special Values (LON:FSV).
“The UK stock market has performed very well this year, but it’s been led by the big blue chips of the FTSE 100,” said Laith Khalaf, head of investment analysis at AJ Bell. “If small and mid caps start to motor, this trust stands to benefit more than most broad UK stock market funds, including index trackers.”
Global investment trusts for beginners
Here are the experts’ picks for investment trusts with a global focus.
Scottish American Investment Company
Scottish American (LON:SAIN) is “a great one-stop-shop trust for those with an appetite for risk, investing predominantly in global equities but with a small allocation to bonds, property and infrastructure”, says Wall.
Its managers James Dow and Ross Mathison seek out companies with dependable income alongside the potential for inflation-beating profit growth.
“They also need to show resilience through the economic cycle,” said Wall, adding that the trust is a dividend hero having increased its dividends for more than 50 years.
F&C Investment Trust
Beginner investors that want a broad play on the global stock market could consider F&C (LON:FCIT).
“It provides access to a very broad and well managed portfolio, delivering steady long-term capital growth alongside an attractive dividend income,” says Philippa Maffioli, senior adviser at Richmond Investment Managers.
Murray International Trust
Maffioli also recommends Murray International Trust (LON:MYI) to beginner investors.
“The trust focuses on achieving long-term returns that outpace inflation, giving investors a strong foundation for the future,” she says.
Alliance Witan
With ten-year returns of 219%, Alliance Witan (LON:ALW) is the highest-performing investment trust over the last decade on this list.
It has an unusual approach to portfolio construction, whereby several external fund managers are asked to pick around 20 of their best stock ideas.
“The result is a portfolio of over 200 stocks, covering a wide range of countries and sectors,” says Kyle Caldwell, funds and investment education editor at Interactive Investor. “For investors prepared to take on a bit more risk, Alliance Witan offers a well-diversified portfolio of global shares.”
Brunner Investment Trust
Brunner Investment Trust (LON:BUT) is a growth-focused investment trust that offers “a modest but steady dividend”, says Maffioli.
“Under the experienced management of Julian Bishop and his team, Brunner has demonstrated resilience and consistency, making it a solid option for those taking their first steps into investing,” she adds.
Capital preservation investment trusts for beginners
Beginner investors might want to take a more cautious approach with their money, especially if venturing into the investing world from predominantly cash savings. These two trusts are solid choices for beginner investors that want to keep their money safe.
Personal Assets Trust
Three experts – Chilver, Khalaf and Wall – recommended Personal Assets Trust (LON:PNL) for beginner investors.
“It has a long track record in protecting investors’ money during periods of stock market volatility and currently has high exposure to government bonds and gold,” said Chilver.
Khalaf particularly likes the balance between these defensive assets with high-quality companies, and Wall highlights the focus of managers Charlotte Yonge and Sebastian Lyon on preserving investors’ capital.
“As well as a good first-time option, this trust can provide ballast to more established equity-biased portfolios,” Wall adds.
Capital Gearing Trust
Capital Gearing Trust (LON:CGT) makes a sound choice for cautious beginner investors because of its heavy weighting towards bonds.
“For those dipping their toes into the stock market for the first time, seeking out funds that provide plenty of diversification is a sensible start as it helps to keep a lid on risk,” said Caldwell. “Among the options is Capital Gearing, which has a third of its portfolio in risk assets (equities), a third in short-dated government bonds and corporate bonds, and a third in index-linked bonds.
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