When choosing assets for a Stocks and Shares ISA, it’s worth considering investment trusts. These closed-end funds provide exposure to a variety of assets and can add a level of stability to a portfolio. This can be particularly beneficial for beginners who are uncertain about which stocks or sectors to invest in.
However, like any asset, the value can rise and fall. A trust’s past performance gives some insight into its growth potential and volatility but is no indication of future results.
| Investment trust | Dividend yield | Ongoing charges | Key sectors | 5-Year total return |
|---|---|---|---|---|
| F&C Investment Trust | 1.6% | 0.51% | Global, diversified | 48.4% |
| City of London Trust | 5.2% | 0.38% | UK equity income | -3.5% |
| Scottish Mortgage | 0.5% | 0.34% | Tech, healthcare | 68% |
F&C Investment Trust
F&C Investment Trust (LSE: FCIT) is one of the oldest and most diversified trusts in the UK, with a strong track record of dividend growth. The yield may be low but payments are reliable.
In addition to shares in popular S&P 500 companies like Nvidia, Microsoft, and Apple, it also invests in emerging markets across Latin America, Asia, and Europe.
Often cited as one of the best global investment trusts, its price typically trades at an 8% to 10% discount to the net asset value (NAV). It’s up 21.16% in the past year and 48.42% over five years.
However, its global exposure makes it sensitive to geopolitical events, such as trade tensions, wars, and regulatory changes. These could affect the fund’s performance.
City of London Investment Trust
The City of London Investment Trust (LSE: CTY) is a popular high-dividend investment trust with a 5.2% yield. It has increased its dividend for 58 consecutive years, putting it at the top of the Association of Investment Companies (AIC) ‘Dividend Heroes’ list.
It’s renowned for stable income generation, adopting a defensive portfolio with a focus on blue-chip UK companies. Holdings include leading FTSE 100 companies like HSBC, Relx, Shell, and Unilever.
However, this can leave it overly exposed to the domestic economy. If the UK economy struggles, the price is likely to suffer too. This likely contributed to the trust’s weak performance over the past five years, as inflation hurt local markets.
Yet through it all, it’s continued to deliver value via dividends.
Scottish Mortgage Investment Trust
Scottish Mortgage Investment Trust (LSE: SMT) is a high-growth investment trust with a focus on global innovation. In addition to popular tech stocks like Amazon and Meta, it diversifies into some healthcare and retail companies, such as Mercadolibre and Moderna.
It’s grown at an annualised rate of 14.5% per year over the past 20 years. However, due to its propensity for emerging tech, it can be volatile. Between March 2020 and June 2022, the price fluctuated wildly between £5 and £15. This makes it better suited to investors with a higher risk appetite.
Since stabilising around £6.20 in April 2023, it’s increased by 58%. As a growth-focused stock, it has a negligible dividend and low fees of only 0.34%.
Conclusion
A key advantage of including investment trusts in an ISA is to better align it with macroeconomic trends. With a high level of diversification, they can provide stability against interest hikes and inflationary pressures.
While their short-term gains pale in comparison to high-growth stocks, they can be lucrative over the long run. I believe any investor looking to build wealth with an ISA should consider including some investment trusts in their portfolio.
