Investment Trusts Offer Growth and Income Opportunities Beyond Traditional Choices
Specialized trusts in sectors like biotech, US equities, and private equity are providing investors with dual returns through unique strategies.
The investment trust structure offers a flexible framework for delivering both capital growth and income, even from asset classes not typically associated with dividends. Investors seeking to diversify their portfolios and achieve these dual objectives can look to several under-the-radar investment trusts that employ distinct strategies.
Biotech Growth with Dividend Potential
The International Biotechnology Trust (IBT) targets the high-growth potential of the biotech industry, which is known for its volatile returns. While individual company successes can lead to significant share price increases, failures can result in substantial losses. Traditionally, the unpredictable cash flows in this sector make dividends uncommon. However, IBT's managers navigate this risk through a selective approach. Over the past five years, the trust's net asset value (NAV) has increased by approximately 86%, outperforming its benchmark, the Nasdaq Biotechnology Index, which saw a 41% rise. IBT utilizes these capital gains to pay a predetermined income, equivalent to 4% of its NAV at the end of the financial year, providing investors with both exposure to medical advancements and a consistent income stream.
UK Smaller Companies Deliver Income and Growth
Montanaro UK Smaller Companies (MTU) is another trust that offers an attractive yield, around 6%, while investing in the growth-oriented UK smaller companies sector. Historically, smaller companies, often reinvesting profits for expansion, have offered limited dividend prospects. However, recent resilient performance and depressed valuations in the UK small-cap market have led to elevated income generation. MTU employs an enhanced dividend strategy to supplement its income. This approach allows investors to benefit from potentially undervalued UK small caps while also receiving a significant income.
US Market Exposure with an Income Focus
While the U.S. market is a primary destination for growth, it traditionally has a weaker dividend culture, with companies often preferring share buybacks. BlackRock American Income (BRAI) addresses this by targeting value stocks, which are typically trading at depressed valuations and thus offer higher yields. Since adopting this strategy in April 2025, the trust has outperformed both the S&P 500 Index and its benchmark. BRAI also features an enhanced dividend policy, paying 1.5% of NAV quarterly, resulting in an annualized yield of approximately 6%. This strategy provides exposure to the U.S. economy's growth potential while diversifying away from the dominant tech sector and generating substantial income.
Dividend Reserves and Global Diversification
Murray International (MYI) has built a notable reserve of income, equivalent to over a year's worth of dividends, by holding back earnings in more profitable periods. This strategy ensures a consistent payout even during leaner times, supporting its track record of 21 consecutive years of dividend growth. The trust currently offers a yield of around 3.6%, more than double the wider global markets as measured by the MSCI World Index. Alongside its strong income performance, MYI has also delivered impressive capital growth, with a five-year NAV total return of 90%, surpassing the global market's 74%.
Private Equity with a Dividend Commitment
CT Private Equity (CTPE) offers exposure to private companies, primarily lower-to-mid-market European firms, before they are publicly listed. This asset class typically has limited income opportunities due to the illiquidity and growth phase of these companies. However, CTPE has maintained a dividend for 14 consecutive years, the longest streak among private equity trusts. Following a set formula since 2012, it pays out 4% of NAV annually, with adjustments to ensure the dividend does not decrease year-over-year. This provides investors with a yield exceeding 6% from an asset class not usually known for income.
These examples highlight how the investment trust structure enables unique strategies to provide investors with both growth and income, often from unexpected sectors. By including such trusts in a diversified portfolio, investors may enhance long-term returns and secure a resilient income stream.