With so many options out there, finding the right investment trust for you can feel tricky.
To help you find your way around all the different options, we’ve put together this guide.
It’s important to keep in mind that the best investment trusts for you might not be for someone else. When looking at investing options, it’s all about fitting them into your goals, time horizon and how you feel about the risks that come with investing.
Investment trusts are pretty unique when it comes to how they are built. For more details on this, check out our guide explaining what investment trusts are over on the Invest Hub.
But without getting too into the weeds, the bottom line on investment trusts is that they allow you to invest in a basket of assets (be that stocks, bonds or something else) and they are managed by experts.
The good news is, they are easily available to us on British shores.
According to the association of investment companies (AIC), in 2022 there’s over £268bn worth of assets under the control of investment trusts (also known as investment companies) in the UK.
Investment trusts all have different investment objectives from capturing global growth to providing an income, and so the fund manager’s will manage them in line with this goal. There’s likely an investment trust available for pretty much every investing style and niche you can think of.
All of these factors can make investment trusts some of the best investments for beginners as well as more experienced investors.
Finding the right investment trust for you starts by thinking about your own situation. What are you looking to achieve when you invest?
Your first step is to think about your long-term goals. Then, you can begin researching the different trusts that fit your blueprint.
One of the major positives about investment trusts is the variety of choices available to suit a whole range of goals from growing your wealth over the long-term to providing an income.
Trusts come in all shapes and sizes, specialising in different geographies or sectors and focussed on established or emerging industries. You’re likely to come across s an investment sector that may not have even been on your radar.
Another crucial area to consider is cost. This includes ongoing management fees from the trust and any commissions or charges from your broker. Any costs will dent your investment performance, so make sure costs are reasonable.
Once you’ve found the right investment trust at the right price point, it’s time to invest.
If possible, it’s worth holding these investments in your stocks and shares ISA or SIPP to help make any returns tax- efficient.
Let’s take a step back for a moment. Investing is an area that always needs some context, particularly when it comes to the word best.
Firstly, as we said earlier the best option for you, is probably not the best option for someone else. That’s where going back to your investing goals and financial circumstances matters.
Then, when it comes to the best performance, it’s important to make sure you don’t just zoom in on information related to a short time period. Investing successfully requires a long-term mindset and firm patience.
Looking at the best performing investment trust for a few months is likely to give you a very different answer to the best performing for five years and beyond.
Imagine using a microscope to look at the Mona Lisa. Sure, that’s kind of cool, but you’re not going to get to appreciate the whole picture.
Instead, looking at longer trends usually reveals more useful information for you to make a decision with.
It’s important to know that the information in this article is just a snapshot into the investment trust market and not a recommendation to buy or sell any particular funds.
You always need to think about how any research or information applies to your own goals and financial circumstances.
Here at Freetrade, we’ve got loads of helpful material for you to get stuck into over at the Invest Hub. But at the end of the day, any investment decision, starts and ends, with you and your circumstances.
Once you know that, working out what’s best for you and whether investments trusts do or don’t fit in with the rest of your portfolio will be easier.
Here’s a list of the top 10 most popular investment trusts on the Freetrade platform in 2021.
As we’ve said before, the most bought shares on Freetrade isn’t a signal they’re the best, just the most popular.
Source: Freetrade, 2022.
We’re taking a look back at 2021 to see which investment trusts were most popular with Freetrade investors.
We’ve broken down investment trusts into categories to make it more of an ‘apples to apples’ comparison.
As the name suggests, these trusts are focussed on growing the value of your investments over the long-term. They invest for growth potential, which can mean dividends and income are less of a priority but this will vary trust by trust.
No delve into the realm of investment trusts would be complete without mentioning Baillie Gifford’s SMT.
It’s been around since 1909 but remains popular amongst all different types of investors today. SMT was the most bought trust on Freetrade in 2021.
The fund has provided a consistent long-term approach to growth, straddling both public and private markets to look for industry disruptors across the world.
This includes big names like Tesla (TSLA), along with up and comers such as Epic Games.
The trust has also been a smooth income operator, increasing dividend payments over the last 39 years.
Another investment trust from Baillie Gifford, this fund looks for the best ways to take advantage of capital growth opportunities in America. This includes the likes of Shopify (SHOP) and Discord. It was the fifth most popular trust on Freetrade in 2021, and puts investor’s money to work in a range of sectors from consumer staples to healthcare and technology.
Growing economies and a rising middle class are creating some exciting investment opportunities across Asia and within certain emerging markets.
Here are some popular trusts that invest within Asia and emerging markets:
Making it into the top 30 most popular trusts on Freetrade, this is a broad and diversified trust with a focus on emerging markets across the globe.
The trust uses the global reach and resources of JPMorgan to invest in a huge range of sectors. Expect holdings such as Taiwan Semiconductor (TSM) to be sitting alongside Chinese tech megatron Tencent (TCEHY).
Although there’s plenty of diversification within this investment trust, it’s important to be aware of the added risks that come with investing in emerging markets.
Ranking number eight on the Freetrade 2021 popularity leaderboard, this investment trust received a lot of attention in recent years thanks to its focus on China.
The trust aims to deliver long-term capital growth by investing in both listed and unlisted Chinese securities. But, it’s a strategy that’s taken a big hit by recent political and economic policies being introduced by the Chinese government.
Here in the UK, we’re big fans of value investing which is all about investing at the right price.
You could argue that with the lack of UK tech names, we have to be. But a more romantic answer would be thatWarren Buffett’s mentor and teacher Benjamin Graham was British-born.
Either way, we love good value. And luckily, there are plenty of investment trusts catering to more frugal investing values.
Here are a couple of popular investment trusts where value investing is a core principle:
This is an investment trust that’s gone through plenty of change over the last few years. But, new managers Nick Purves and Ian Lance remain on the hunt for deep value buys. This included investments such as Royal Mail (RMG) and retail giant Marks and Spencer (MKS).
Coming in at number 30 on the Freetrade platform, the ‘return to value’ in investing sentiment has led to increased interest in the trust which has a large focus on undervalued and sometimes unfashionable UK companies.
This trust also looks for undervalued and overlooked UK equities and came just behind Temple Bar in terms of popularity on the Freetrade app in 2021.
The portfolio manager Alex Wright aims to keep the trust price to earnings (P/E) ratio within certain levels and below 10x earnings if possible. This means you’ll find the likes of Legal & General (LGEN) and Serco (SRP) as key holdings within the fund.
Searching out value investments on home turf led to good returns in 2021. But, that was off the back of a poor 2020 when the post-pandemic market was consumed with growth and tech names.
This goes to show why a diversified portfolio, made up of a number of different investments is important to give yourself the best chance to perform in all climates.
When looking for the best income-focused investment trusts, stability and longevity are key. Can the trust show it has continued to pay out an income each year come rain or shine?
Typically, income investors aren’t looking for whopping growth. They’re after a fairly reliable source of income. As with all investing there are never any guarantees, so it’s important to keep in mind that the income investments pay you can vary too.
This flagship trust has been around for decades. It hones in on reliable income-generating assets in the UK. And, over time this is something they’ve shown they can do well.
A focus on owning established, dividend payers such as Diageo (DGE) and Rio Tinto (RIO) has helped the trust increase the dividend payout to investors each year for over 55 years. This earned the trust a spot at the top of the AIC divided heroes table.
Investing for your retirement doesn’t always mean income. It's often a good idea to have a blend of dividends and steady growth in the value of your investments over time. By investing on a global scale, this investment trust aims to do just this.
Investments such as Microsoft (MSFT) and American Expresshave assisted the trust’s stellar record of managing to increase its dividend payment for the last 55 years.
The UK economy is home to companies of all shapes and sizes, new and old.
Because of this, there are plenty of opportunities for experienced investors to seek out younger firms with promising growth potential.
Here are some of the most popular investment trusts that focus on smaller UK companies:
This investment trust aims for long-term capital growth by investing in small, UK-based companies. As investors peeled their eyes away from US markets, this trust came back into the limelight in 2021.
Investments include FTSE 250 listed Safestore (the EU’s second largest provider of self-storage) and software company Kainos. The way investment trusts are built gives them more flexibility to invest in smaller companies, which is a key point of comparison versus open ended funds.
A popular choice for many Freetrade investors, this trust invests in a number of sectors and is mainly focussed on UK small caps traded on the LSE and AIM exchanges.
Firms such as Gamma Communications (GAMA) and Moneysupermarket.Com (MONY), are in amongst some of the biggest holdings within the trust.
The trust’s managers aim to generate performance for their investors by finding high-quality ‘hidden gems’ at a fair price and with a strong growth trajectory going forwards.
One of the best ways to try and secure a reliable and growing income from an investment trust is to cast a global net.
Here are some of the investment trusts that use worldwide reach to search for dividend payments for investors:
Although this popular trust didn’t make it into Freetrade’s top 10 most bought trusts in 2021, the recent surge in commodity investing has boosted investor interest in this strategy.
Combining a broad mix of worldwide mining and metal assets, the fund aims to provide investors with both long-term capital growth and an income stream.
Keep in mind though that a miner's fortunes are often dictated by the price of what they’re digging up (which isn’t in their control) so dividends are never guaranteed.
Just squeezing into the top 20 most popular investment trusts on Freetrade, this is another trust that’s been around the block a few times. There are plenty of household names in the portfolio, including stocks such as Procter & Gamble (PG) and PepsiCo (PEP).
Along with capital growth, this global investment trust has also been able to increase the income paid to investors every year for the last 48 years. The trust’s headline goal is to grow the dividend at a faster rate than inflation, a tall task in the current climate.
If you’re looking to put your best foot forward when it comes to ethical or sustainable investing, these green energy and socially responsible funds were particularly popular on the Freetrade platform in 2021:
This was the second most bought investment trust on Freetrade in 2021. The name might give it away, but this investment trust looks for the best ways to harness the power of wind farms and wind related assets.
The trust aims to provide investors with an annual dividend that increases in line with inflation as measured by RPI (the retail price index).
This investment trust looks for the best ways to deploy capital into clean hydrogen and energy storage as part of the global transition to greener energy.
The third most popular trust on Freetrade in 2021, it focuses on finding and investing in companies that look well positioned for future net zero government legislation.
Some investment trusts will give you a better chance of inflation-proofing your portfolio as they have a specific goal of matching or slightly outpacing inflation, providing one of the best ways to preserve your wealth.
While other trusts might focus on long-term growth in particular regions or sectors, they might still be able to help you beat inflation but are not mandated to.
If you’re wondering how to invest during inflation, investment trusts are worth exploring.However, it’s important to keep in mind that past performance doesn’t dictate future results.
So, just because an investment has managed to beat inflation historically, there’s no guarantee it can do it again.
The economic climate is changing all the time. What caused high inflation in the past will not necessarily be the same powers that are influencing rising prices in 2022.
If you’re trying to outpace inflation with your investments, the best route is often to diversify and spread your investments across a range of sectors. This means you should be better prepared for a variety of events and the unpredictable nature of the economy and markets.
What’s done well in the past doesn’t always translate to future performance. Times change.
When you’re looking at investment trusts to buy in 2022 and beyond, it’s a good idea to research some big themes that you think will shape the economy in the years and decades to come.
This could be further growth in emerging markets, higher interest rates affecting your portfolio, more capital going to private equity, or commodities continuing to boom.
Whatever your ideas, you can find great investment trusts to support them.
It’s very rare to predict exactly how events will unfold, and even more difficult to predict how markets will react.
So, one of the best ways to think about investment trusts for 2022 could be to look at a few different trusts that you think will do well across various scenarios.
This all comes back to staying diversified. Some trusts are so specific and invest in such a small target area, that you’d do well to invest across a few trusts, piecing together your ideal portfolio.
Here’s a roundup of all the various trusts mentioned, along with their respective sectors and how they ranked in terms of popularity last year:
Source: Freetrade, 2022.
This will come down to the type of investor you are and what you’re hoping to achieve.
Each trust will have its own goals and styles. Looking for one that matches up well with the attributes you’re looking for should be your priority.
It’s often not a foolproof plan to simply choose the best past-performers or even the most popular picks.
Sometimes, investments that have boomed are at the end of their growth cycle. And, what’s popular amongst other investors may not work well in your portfolio, or suit your investing strategy.
The cost of investment trusts can also vary wildly. So, it’s important to make sure you’re fully aware of any ongoing fees because this can impact your returns.
Remember that all investing carries risk. It’s impossible to tell what will be the best investment trusts for 2022 and beyond. So, if you’re ever unsure about what investments to choose, it may be worth speaking to a qualified financial advisor to keep you on the right track.
This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.
When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
Eligibility to invest into an ISA and the value of tax savings depends on personal circumstances and all tax rules may change.
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