Freetrade is taking the UK investment scene by storm with their commission-free trading. In this article, I take a look at the three most popular investment trusts available right now on the Freetrade app.
What is an investment trust?
Before we dig into this list, it’s worth taking a moment just to clarify what an investment trust is.
Previously, we’ve discussed trusts in relation to life insurance, but this a different kind of trust.
An investment trust allows you to pool your money together with other investors. This creates a larger collective, allowing you to benefit from economies-of-scale as an individual investor.
Investment trusts are set up as public limited companies listed on the stock market. They have expert managers who decide where to invest. So you’re able to take advantage of expert management at a low cost.
They’re also closed-end funds. This means that the number of shares in circulation can’t be increased. So popular trusts sometimes have supply and demand constraints that are reflected in the share price.
3 most popular trusts on the Freetrade app
Here are the most popular investment trusts available on Freetrade. As you’ll see, each trust has a manager with a unique and distinct approach to successful investing.
1. Scottish Mortgage (SMT)
This is the largest investment trust available in the UK, so it’s no surprise it makes Freetrade’s most popular list.
The aim of this trust is nothing to do with Scotland or mortgages. Their focus is finding companies with high growth potential. This means picking companies likely to become future market leaders. Unsurprisingly, this includes a lot of tech stocks.
Trusts are able to invest in private companies not yet publicly traded. This opens up opportunities to catch the next big players, well before their initial public offering (IPO). This is why some favour an investment trust over a unit trust.
Trust manager James Anderson has a keen eye for hot tech prospects. Sometimes success for a tech company needs the right circumstances, as we’ve seen this year with certain US shares soaring.
With that in mind, Anderson is always on the lookout for businesses showing great growth potential for the next five to 10 years. This long-term attitude is reassuring and partly why Scottish Mortgage is such a popular choice.
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2. Polar Capital Technology (PCT)
The focus of this sought-after trust on Freetrade is also technology, but with a different approach.
Trust manager Ben Rogoff doesn’t share the same aptitude for early-stage opportunities. His strategy is to wait for businesses to prove themselves before investing.
It’s become alarmingly acceptable for huge tech companies to be losing massive amounts of money or barely breaking even. Rogoff’s solution is investing in tech companies that are actually making money.
This may mean missing out on the latest company to blow up out of nowhere, but you can be sure the money in this trust is invested wisely.
Also, a proven track record of good finances doesn’t mean there’s no more room for growth.
3. City of London (CTY)
It’s been a tough year for dividend investors. Dividend investing is usually a reliable and consistent investing approach. This year, however, saw plenty of cuts to dividends previously thought of as unimaginable.
Thankfully there’s been some positive news recently, with UK banks being allowed to resume paying dividends to shareholders. Amazingly, City of London’s trust manager Job Curtis has been able to keep the trust steady during such an unpredictable year. This has made it a very popular option on Freetrade.
The unique structure of investment trusts means they can keep aside up to 15% of their income. They then use it to smooth things out during bumpy periods. Curtis used this technique expertly to top up payments to investors who’ve happily seen their annual dividend rise by 2.2%.
It’s worth keeping in mind that the trust doesn’t have bottomless income reserves. They do, however, regularly select companies paying consistent dividends with the potential for long-term growth.
Investing in trusts on Freetrade
It’s worth looking outside the frontrunners because the most popular trusts can be overpriced.
So it’s necessary to have a share dealing account with access to a wide range of investment trusts to find the right one for you. Using a stocks and shares ISA also means you can capitalise on high-growth trusts in a tax-efficient way.
Freetrade have an excellent range of investment trusts and the ability to use a stocks and shares ISA. Their commission-free trading also means they can be a great starting point for selecting an investment trust.
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