As we approach the new tax year, most of us will be looking to maximise this year’s ISA allowance by either opening a new ISA or reviewing what’s in your current portfolio.
One of the most popular investments that end up in portfolios are investment trusts - and data also shows that investors who hit the millionaire point with their ISA, are highly invested in trusts - see our article on how to invest like an ISA millionaire for more.
If you are considering your investment choices, then these are the seven investment trusts to add to your ISA based on whether you are a cautious, balanced, adventurous or an income seeker.
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Investment trusts for cautious investors
As a cautious investor, capital preservation is important to you and you’re looking to avoid sporadic losses.
Personal Assets Trust (LSE: PNL)
“The £1.9 billion Personal Assets Trust is a solid choice for investors looking to protect and increase (in that order) the value of their investment over the long term,” says Alena Kosava, head of investment research at AJ Bell.
The trust has seen steady returns over previous years and has done well in difficult market conditions seen last year and the start of 2023.
The trust is managed by experienced manager Sebastian Lyon, who has taken a defensive positioning of this trust. “In particular its exposure to inflation protecting assets such as gold and inflation-linked bonds, means it has notable appeal,” adds Kosava.
The portfolio has seen little change from a year ago, holding around 10% in gold bullion and 35% in US TIPS (US index linked bonds) and has a high exposure to ‘high quality’ equities such as Unilever, Visa and Nestlé.
“Amid bear market falls in both equities and bonds throughout 2022, the trust offered significant protection to client capital (down -3.8% on the year). As a result, the trust is effective at providing investors with a multi-asset diversified portfolio and given the emphasis on capital protection, should sit well with more cautious investors.”
Life Science REIT (LSE: LABS)
Another option for those investors who are looking to preserve capital is Life Science REIT.
The company is building a portfolio of properties let to the life sciences sector - one of the government’s current areas of focus for economic growth. These premises are in short supply, presenting an opportunity for operators such as Life Sciences.
Management has been buying up underutilised office buildings that are prime conversion candidates, and then converting them to make them suitable for life sciences businesses. It focuses on properties in the so-called life science "Golden Triangle" of Oxford, Cambridge and London. With portfolio occupancy at over 90%, it certainly looks as if the REITs strategy is paying dividends.
Launched in 2021, the real estate investment trust is seeking to generate an income for investors of 4–5% a year as part of a 10% target net asset value (NAV) return.
Trusts for balanced investors
If you’re a balanced investor, you’re probably looking for some capital preservation and some growth and may want to consider this trust.
Fidelity European Trust (LSE: FEV)
“This £1.3 billion trust aims to achieve long-term growth in both capital and income by predominantly investing in equities of continental European companies,” Kosava says.
The fund’s strategy is focused on identifying long-term growth opportunities in companies with strong fundamentals as well as long-term structural growth prospects.
The trust’s manager Sam Morse has three decades of experience and looks for businesses exhibiting an ability to grow dividends sustainably over a 3 to 5 year period, according to the fund platform.
AJ Bell’s research shows that the portfolio includes quality companies trading at reasonable valuations, best thought of as a GARP [Growth at a Reasonable Price Strategy] investment style.
“The manager also runs an open-ended strategy – Fidelity European Fund – implementing the same philosophy and approach to selecting European stocks. The process steers clear of trying to time markets and typically avoids more cyclical stocks and smaller companies in order to manage downside risk,” Kosava said.
The trust was trading on a -7.4% discount at the start of this month and has offered protection in falling markets through 2022, while also outperforming both the broader European equity market and sector.
The trust is overweight in financials, technology and industrials sectors, featuring some of the household names like Nestlé, ASML and LVMH Moet Hennessy.
Trusts for adventurous investors
If you’re an adventurous investor, then you’re comfortable with higher risk with the hope to secure stronger long term returns.
Worldwide Healthcare Trust (LSE: WWH)
The healthcare sector might seem like an obvious choice here as we emerge out of the pandemic, but this £2 billion Worldwide Healthcare Trust has had a difficult 2020 and has also been weak in 2022.
“With an underweight to the big Covid pharma stocks and an overweight to life sciences, biotech and China, this trust has faced some strong headwinds and underperformed its benchmark by 20%.Challenges around Chinese exposure persisted in the last couple of years.” Kosava said.
“However, the bigger picture away from the immediate Covid winners’ story is how the rapid drug development of the last 18 months translates into revolutionary new treatments looking forwards,” she adds.
In a recent update, managers cited biotech being in a ‘sweet spot’ and the place to be in a recession.
At the start of the month, the trust has a widening discount of -8.3%, but the managers are bullish about the healthcare sector when it comes to delivering growth and share price outperformance.
“The trust’s managers, healthcare specialists OrbiMed, continue to find attractive opportunities and the recent issues in China have created further buying opportunities. In addition, the trust has access to private markets and has been looking to invest in the unlisted space with c.6% of the trust’s exposure in this area,” AJ Bell research states.
Fidelity China Special Situations Trust (LSE: FCSS)
Chinese equities have not had a good run, and although the road ahead is likely to still be rather bumpy, investor sentiment for China is improving since it opened after its lockdown. “As China is set to become the world’s largest economy within the next decade, exposure to its expanding middle class, rising median incomes and technological advancements should underpin the region’s growth prospects,” Kosave says.
Fidelity China Special Situations Trust offers broad exposure to the opportunities in and expects to benefit from the new consumer spending power we expect to see.
“New consumer spending power and increasing aspirations underpin many of the portfolio’s investments, alongside fast-growing industries such as the internet, e-commerce and healthcare. The trust invests across an array of sectors, utilising Fidelity’s ample analyst resource.”
Trust for Income seekers
If you’re primarily investing for income, this trust might be a great addition to your ISA.
City of London Investment Trust (LSE: CTY)
A favourite among investors, this trust is one of the highest yielding trusts on our, yielding around 4.8%.
The £2 billion trust aims to provide long-term growth in income and capital, principally by investment in equities listed on the LSE.
“It has the longest track record of dividend increases of any investment trust for annual increases in dividends, since 1966. It has achieved this mainly by focusing on quality companies able to grow dividends over time,” says Kosava.
It invests mainly in UK equities with a focus on large, multinational businesses able to grow their profits consistently over the long run.Some of the largest holdings are British American Tobacco, Shell and Diageo. Overseas holdings include TotalEnergies, Nestlé and Novartis.
Fund manager Job Curtis has been running the trust since 1991.
Law Debenture Trust (LSE: LWDB)
A MoneyWeek favourite in the UK equity income space is the Law Debenture Trust.
This trust has a unique structure in that it operates a professional services company alongside the investment portfolio. The division provides services such as pension and whistleblower management for other corporations, bringing in a steady, recurring income stream.
This also gives the firm’s portfolio managers more flexibility. They can look outside the traditional UK equity income space when hunting for opportunities.
Ongoing charges of 0.48% are some of the lowest in the investment trust sector and the trust currently pays a dividend of 30.5p a year (a dividend yield of 3.6%).
Additional contributions from Rupert Hargreaves
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