Investment Trusts Offer Regular Income and Potential for Outperformance

Investment trusts present a compelling option for individuals seeking a regular income from their savings. These stock market-listed funds, which invest in assets like shares, property, or bonds, often demonstrate superior performance compared to conventional funds holding similar assets. According to the Association of Investment Companies (AIC), over the past decade, three-quarters of investment trusts have outperformed their 'sister funds'—normal funds managed by the same entity—delivering an additional £31 for every £100 invested.

The unique structure of investment trusts allows their shares to trade on the stock market at either a premium or a discount to the net asset value (NAV) of the underlying investments. Kyle Caldwell, an expert from the investment platform Interactive Investor, explains that a trust's popularity can drive its share price above its NAV, resulting in a premium. Conversely, a lower share price relative to NAV signifies a discount. Purchasing shares at a discount can offer a financial advantage, particularly if the discount narrows over time. AIC research indicates that investment trusts bought at substantial discounts (double-digit) have yielded significantly higher returns over five-year periods compared to those acquired at narrower discounts.

Investment trusts are particularly attractive for income-seeking investors due to their ability to retain profits from prosperous years in reserve. This practice enables them to maintain or even increase dividend payouts during leaner periods, thereby avoiding cuts. Caldwell noted that during market downturns, such as the Covid-19 pandemic, many UK equity income investment trusts were able to sustain or grow their dividends by utilizing these reserves. This feature makes them a robust choice for those prioritizing a consistent income stream, with some trusts boasting consecutive dividend increases for at least 20 years.

Furthermore, investment trusts can provide access to investments that are typically less liquid or harder to find elsewhere. Ed Monk, an investment specialist at Fidelity International, highlights their capacity to offer exposure to companies before they become publicly listed. The structure also allows investment trusts to invest in illiquid assets like property or shares in unlisted companies, without the pressure to sell holdings to meet investor withdrawals that can affect open-ended funds. This flexibility enables trust managers to select holdings that may be more challenging to trade.

For investors looking to manage market volatility and preserve wealth, James Scott-Hopkins, founder of EXE Capital Management, recommends Personal Assets Trust. This £1.6 billion trust, focused on wealth preservation, offers a 1.4 per cent yield and is currently trading at a 0.24 per cent discount.

Scott-Hopkins also points to Temple Bar Investment Trust for those seeking a growing income stream. This UK equity income-focused trust, yielding 3.8 per cent and trading at a 1.21 per cent premium, primarily invests in UK companies trading below their intrinsic value and has a history of consistent dividend payments.

For global diversification and access to unlisted assets, Scott-Hopkins suggests the Scottish Mortgage Investment Trust. This large trust is trading at a 9.16 per cent discount. Despite a historically turbulent period, it has shown strong performance, notably as an early investor in SpaceX. Between July 2, 2025, and July 2, 2026, it delivered total returns of 39.2 per cent on NAV and 45.3 per cent on share price, surpassing the global market's 29.1 per cent return. The trust experienced a significant decline in 2022, largely due to the impact of high interest rates on its portfolio companies.