Quick facts

• Minimum investment: from £50/month on most platforms
• Number of trusts: 311 companies managing £272bn
• Tax efficiency: can be held in ISAs (£20,000 annual allowance) and SIPPs
• Average ongoing charges: 0.5–1.5% annually
• For research: visit theaic.co.uk for comprehensive data and analysis

What are investment trusts and why have they endured for over 150 years?

Investment trusts have been making investment accessible to ordinary investors since 1868, when F&C Investment Trust became the world’s first collective investment scheme, where money from a range of investors was pooled together and invested by a fund manager. Today, with the sector managing £272bn in assets across 311 trusts, they remain a cornerstone of UK retail and institutional portfolios. Despite being less well-known than unit trusts or open-ended investment companies (OEICs), investment trusts offer unique structural advantages that have helped many deliver decades of consistent dividend growth and strong long-term performances.

Are investment trusts suitable for beginners?

Investment trusts can be excellent for beginners despite their ‘complex’ label. Many platforms allow investments from just £50 a month, you can buy them as easily as shares through any stockbroker or investment platform, and diversified global trusts like F&C Investment Trust or Alliance Witan provide instant access to hundreds of companies worldwide. The key is starting with established, diversified trusts before exploring specialist sectors.

Exhibit 1: Popular trusts by investment goal

Source: Edison Investment Research

How do investment trusts differ from other funds?

Investment trusts are ‘closed-end’ funds: they have a fixed number of shares that trade on the stock exchange like any other company. This contrasts with ‘open-end’ funds (unit trusts and OEICs), which create or cancel units based on investor demand. The closed-end structure means investment trusts do not need to sell assets when investors want their money back; they simply sell their shares to another investor on the stock market. This permanent capital structure enables investment trusts to invest in less liquid assets such as private equity, infrastructure and property. Scottish Mortgage Investment Trust, the sector’s largest trust with over £12bn in assets, famously held early stakes in companies like Spotify and Moderna before they went public. The structure also allows trusts to borrow money (‘gearing’) to potentially enhance returns, though this increases risk.

What advantages do investment trusts offer income investors?

Investment trusts can smooth income payments by holding back up to 15% of their income in good years to maintain or increase dividends during leaner periods. This has enabled many trusts to build extraordinary dividend track records. City of London has increased its dividend for 58 consecutive years, while F&C Investment Trust has raised its payout for 54 years running. The Association of Investment Companies identifies 20 ‘dividend heroes’ that have increased dividends for over 20 years. Many trusts also offer attractive yields:- Murray International yields 4.4% while Temple Bar yields over 3%. The ability to invest in higher-yielding alternative assets like infrastructure and debt securities provides additional income opportunities that are unavailable to open-ended funds.

Why do investment trusts trade at discounts and premiums?

Because investment trust shares trade on the stock market, their price is determined by supply and demand, not just the value of the underlying assets (NAV). When shares trade below the trust’s NAV, it is called a discount; above NAV is a premium. The average trust currently trades at a 13–15% discount, creating potential opportunities for value-conscious investors. Boards actively manage discounts through share buybacks, with a record £7.5bn in 2024 alone. Some trusts, like Personal Assets Trust, operate ‘zero discount’ policies, while others use tender offers or wind-up provisions if discounts persist. Premiums typically reflect investor enthusiasm – growth trusts like Allianz Technology often trade at premiums during tech rallies.

What role do independent boards play?

Every investment trust has an independent board of directors who oversee the fund manager and protect shareholder interests. Boards can replace underperforming managers, negotiate fee reductions, implement discount control measures and even propose mergers or wind-ups if necessary. This governance structure proved its worth in 2024, with boards driving 32 fee cuts, 10 merger completions (including Alliance Trust and Witan creating a new UK100 constituent) and record buyback programmes. The recent boardroom changes at Scottish Mortgage, following shareholder pressure over performance, demonstrate how boards provide accountability, which is absent in open-ended funds.

Which AIC sectors are performing strongly?

Over the year to October 2025, global emerging markets led with 36.6% returns, followed by Japan (38.6%), European smaller companies (28.9%) and technology & innovation (27.1%). Investment trusts significantly outperformed open-ended funds in most sectors: global emerging markets trusts beat OEICs by 12.6 percentage points, while European smaller companies outperformed by 11.1 points. Long-term performance remains impressive: technology & innovation delivered 755.7% over 10 years, North America returned 357.9% and global trusts achieved 315.3%. The structural advantages of investment trusts are clear: over 10 years, investment trusts outperformed open-end funds in 11 of 16 comparable sectors, with technology trusts beating OEICs by 86 percentage points.

What are the costs involved?

Investment trusts’ costs are generally competitive. Ongoing charges average 0.5–1.5% annually, with many large trusts below 0.5%. F&C Investment Trust charges just 0.45%, while passive trusts can be under 0.2%. Trading costs include stamp duty (0.5% on UK trusts), dealing charges (typically £10 per trade on platforms) and the bid-offer spread. The trend is firmly towards lower fees, with tiered structures becoming common – fees reduce as assets grow. Many trusts have abolished performance fees entirely. Platform charges for holding trusts are typically similar to those for funds, and trusts can be held in ISAs, SIPPs and Junior ISAs for tax efficiency.

What could regular investing achieve?

The power of long-term ISA investing in investment trusts has been dramatically demonstrated by new AIC research. Fifty investment trusts would have turned maximum ISA contributions since 1999 (totalling £326,560) into over £1m by January 2025. The top performers have delivered extraordinary returns: Allianz Technology Trust (£2.9m), HgT (£2.8m), Polar Capital Technology (£2.7m) and Scottish Mortgage (£2.3m). More modest regular investing (£100 monthly at 7% annual growth)* could achieve:

• after 10 years: £17,400 (£12,000 invested);
• after 20 years: £52,400 (£24,000 invested); and
• after 30 years: £122,000 (£36,000 invested).

These real-world results showcase how investment trusts’ ability to take long-term positions, invest in illiquid assets and compound returns over decades can create significant wealth. As Mike Seidenberg of Allianz Technology Trust notes, sustainable innovation and solving difficult problems drive long-term returns.

*Past performance does not guarantee future returns. Diversification across multiple trusts is essential.

Analyst’s view

Investment trusts offer compelling advantages for long-term investors: permanent capital enabling illiquid investments, revenue reserves supporting consistent dividends, independent boards protecting shareholder interests, and potential discount opportunities. While complexity and volatility from gearing and discounts add risk, the sector’s 156-year history demonstrates remarkable resilience. The ability to access private markets, maintain dividend growth through economic cycles and benefit from active board oversight makes investment trusts particularly relevant as markets become more volatile and income becomes harder to find. With ongoing consolidation improving liquidity and reducing costs, investment trusts are modernising while retaining their structural advantages. Learn more about investment trusts on our website.