Investment Trusts

Last minute Isa rush: five reasons to consider an investment trust

Investment trusts work in a unique way. Ahead of the April deadline Isas, we explain why they could make excellent investments in 2017

22 Mar 2017

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The Isa season is almost here which means it’s time for investors to check that they have taken full advantage of their tax-free allowance for the current tax year - of £15,240. If you don’t use it, you lose it.

On 6 April there’s a new increased allowance of £20,000 per person. Returns from Isas are free of both income and capital gains tax - and you don’t even need to include Isa savings on your tax return. Seasoned investors who are willing to take on more risk may shun the cash Isa option, a deposit account, for the stocks and shares option on the hope of accessing higher returns.

Whether you’re topping up this year’s Isa or planning to invest in the new tax year, it’s important to make the right investment decisions.

An Isa is simply a tax-free basket inside which you should place a carefully selected portfolio of investments that will meet your needs. While many ISA investors will reach for an open-ended fund - the more widely used type of fund -many could overlook an important opportunity to include an investment trust.

Investment trusts are also known as closed-ended funds as they have a fixed number of shares in issue. They offer a range of characteristics which could be attractive to savers looking to invest wisely.

Why pick an investment trust for your Isa?

-Inflation is on the rise

UK inflation is already at 1.8% and is expected to climb higher past the Bank of England’s 2% target rate. Schroders economists expect the figure to reach close to 3% next year. It is important to find inflation-beating returns. According to statistics from the Association of Investment Companies, investment trusts have beaten their benchmarks more frequently than open-ended funds over the medium and long-term¹. Of course it’s important to recognise that past performance is no guidance to future performance and your capital is at risk.

-Steady income

The year 2017 is expected to be an interesting one for stock markets with Britain’s looming break-up with the European Union - Brexit - and the unknown effect of President Donald Trump’s rule on the US economy. Investment trusts can deliver a steady income to investors, even in times of crisis because they can hold back up to 15% of their dividends during bumper years to keep reserves for any tough times that lie ahead. This ensures investors can benefit from a steady income in any kind of market conditions.

-Wide choice of flexible investments

Closed-ended investment companies are able to offer investors direct access to illiquid assets, such as property, infrastructure and private equity. They are less vulnerable to the risk that high levels of redemptions might create a requirement to sell assets at short notice to meet demand for redemptions as with open-ended funds. This was important in 2016, when withdrawals were restricted on open-ended property funds, due to Brexit-related selling. Meanwhile, there were no withdrawal restrictions on property investment trusts.

-Low cost

Costs are an important consideration when it comes to investing. Each fund will come with fees - some higher than others. These charges eat into returns so it’s crucial to keep an eye on what you’re paying. Investment trusts have independent boards that scrutinise costs to keep them at modest levels. According to the Association of Investment Companies², 52% of investment trusts have asset management fees set at under 0.75%, which compares to just 25% of open-ended funds. Only 4% of investment companies have asset management fees at 0.75% compared with open-ended funds of which 11% have fees at 0.75% Almost a quarter (22%) of open-ended funds have fees of 1.5%. In stark contrast, no investment companies had asset management fees of 1.5%.

-Long term view

If you’re saving in an Isa for the long term, the structure of an investment trust can help. As closed-ended funds, investment trusts have a fixed number of shares in issue. This means the investment trust manager will not be forced to sell any of the fund’s underlying assets to meet redemptions for those who want to cash in their investments, as may be the case in some open-ended funds. Forced selling can drag on performance.

How to invest

Setting up a regular savings plan is a sensible option even if you have a lump sum to invest. By investing at regular intervals, more shares are purchased when share prices are low and fewer shares are purchased when prices are high.

Should your money buy stocks at a lower price, there is a higher return when the market swings back up.  However it is important to note that your risk of losing money will increase if you sell your shares when the share price of the fund is at a discount, that is when it is below the net asset value (NAV) of the fund.

You can place investment trusts in an Isa using a fund supermarket or platform, or speak to an independent financial adviser.

If you don’t already have an adviser you can trust to help you select the right investments, you can find local independent advisers at Here you will also find a full list of the different qualifications an adviser can have as well as the professional bodies that represent them. You can also visit, which allows consumers to rate and review advisers they have used. Financial advisers have to be authorised by the Financial Conduct Authority (FCA).