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 such as shares, property, or bonds, often demonstrate superior performance compared to traditional funds investing in similar assets.

According to the Association of Investment Companies (AIC), three-quarters of investment trusts have outperformed their 'sister funds'—normal funds managed by the same company—over the past decade, delivering an additional £31 for every £100 invested. This outperformance is partly attributed to their structure as listed companies with a fixed number of shares that can trade at a premium or discount to the value of their underlying investments, known as the net asset value (NAV).

Kyle Caldwell of Interactive Investor explains that when a trust is popular, increased demand can drive its share price above its NAV, resulting in a premium. Conversely, a lower share price relative to NAV means the trust is trading at a discount. Purchasing shares at a discount can represent a bargain, especially if the discount narrows over time. AIC research indicates that investment trusts bought at significant discounts have historically yielded higher returns.

For investors targeting income, investment trusts offer a key advantage: the ability to retain profits in reserve. Unlike regular funds that must distribute all income annually, investment trusts can hold back profits from strong years to ensure consistent payouts during leaner periods. This resilience has allowed many trusts to increase their dividends for 20 consecutive years or more. During the market downturns experienced during the COVID-19 pandemic, most UK equity income investment trusts maintained or increased their dividends by utilizing these reserves.

Investment trusts also provide access to assets that may be difficult to find or sell elsewhere, such as property or shares in unlisted companies. Ed Monk, investment specialist at Fidelity International, notes that they can offer early exposure to promising companies before they go public. The structure of investment trusts allows managers to hold less liquid assets without the pressure to sell holdings to meet investor redemptions, a common challenge for open-ended funds during market slumps.

Several investment trusts are highlighted for their potential. James Scott-Hopkins, founder of EXE Capital Management, points to Personal Assets Trust, a £1.6 billion trust focused on wealth preservation, which yields 1.4 percent and trades at a slight discount. For those seeking a growing income stream, Temple Bar Investment Trust is recommended. This UK equity income trust offers a 3.8 percent yield and trades at a small premium, focusing on undervalued UK companies with a history of decent dividends.

For global exposure and access to unlisted assets, Scott-Hopkins suggests the Scottish Mortgage Investment Trust. This trust, currently trading at a 9.16 percent discount, has a history of investing in companies like SpaceX. While it experienced a downturn in 2022 due to rising interest rates, it delivered strong NAV and share price total returns of 39.2 percent and 45.3 percent, respectively, over the year to July 2, 2026, surpassing the global market's return of 29.1 percent during the same period.