"It’s essential that investors are aware of the way in which discount/premium pricing works, as well as the impact of gearing within the portfolios.”
If a trust's share price moves below its NAV, it is said to be trading at a discount, if it rises above, it is trading at a premium.
Trust managers also use gearing, which is a way to multiply returns by taking on debt. Though that can backfire when the invested assets lose money and losses deepen faster.
Scott Gallacher, chartered financial planner at Rowley Turton, added: “I would probably say one of the reasons [our] clients tend to avoid investment trusts and we’re cautious on recommending them is that additional risk factor.
“With investment trusts, because you have the extra risk of discount and premium and extra movement in the value of the investment in that sense, I don’t think they suit most investors that well.”
According to AJ Bell, a portfolio evenly split between the top 10 investment trusts by total return over the past 10 years would have grown £100,000 into more than £475,000 and would be generating almost £7,000 income currently, while a portfolio evenly split between the top 10 trusts based on current yield would have turned £100,000 into just over £365,000 but would be paying out current income of almost £10,000.
Top 10 trusts by total return
Company | AIC sector | Years of dividend | 2018 yield on 2009 price | 2018 yield on 2019 price | Total return (%age) | Growth of £10,000 pot since 2009 | Income today on £10,000 invested in 2009 |
| increases | |||||||
| BlackRock Throgmorton | UK Smaller Cos | 15 | 8.60% | 1.70% | 540.90% | £64,091 | £862 |
| Scottish Mortgage | Global | 37 | 3.20% | 0.60% | 523.40% | £62,341 | £322 |
| BlackRock Smaller Cos | UK Smaller Cos | 16 | 10.30% | 2.00% | 519.90% | £61,986 | £1,030 |
| Henderson Smaller Cos | UK Smaller Cos | 16 | 11.00% | 2.60% | 432.10% | £53,214 | £1,101 |
| Standard Life UK Smaller Cos | UK Smaller Cos | 12 | 6.30% | 1.50% | 402.30% | £50,229 | £633 |
| BMO Global Smaller Cos | Global | 49 | 3.80% | 1.10% | 293.60% | £39,357 | £380 |
| Scottish American | Global Equity Inc | 39 | 6.90% | 2.80% | 267.10% | £36,705 | £689 |
| Schroder Oriental Income | Asia Pacific Ex Japan | 12 | 9.20% | 3.80% | 259.10% | £35,911 | £915 |
| Bankers | Global | 52 | 5.60% | 2.10% | 257.70% | £35,773 | £563 |
| F&C Investment Trust | Global | 48 | 4.40% | 1.50% | 254.00% | £35,398 | £441 |
| Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout. | |||||||
Top 10 trusts by current income
Company | AIC sector | Years of dividend increases | 2018 yield on 2009 price | 2018 yield on 2019 price | Total return (%age) | Growth of £10,000 pot since 2009 | Income today on £10,000 invested in 2009 |
| Witan | Global | 44 | 17.90% | 7% | 237.70% | £33,767 | £1,792 |
| Henderson Smaller Cos | UK Smaller Cos | 16 | 11.00% | 3% | 432.10% | £53,214 | £1,101 |
| BlackRock Smaller Cos | UK Smaller Cos | 16 | 10.30% | 2% | 519.90% | £61,986 | £1,030 |
| British & American | UK Equity Income | 24 | 10.10% | 24% | 17.00% | £11,695 | £1,012 |
| Schroder Oriental Income | Asia Pacific Ex Japan | 12 | 9.20% | 4% | 259.10% | £35,911 | £915 |
| BlackRock Throgmorton | UK Smaller Cos | 15 | 8.60% | 2% | 540.90% | £64,091 | £862 |
| Scottish Investment Trust | Global | 35 | 8.50% | 4% | 158.10% | £25,813 | £852 |
| Athelney | UK Smaller Cos | 16 | 8.20% | 4% | 209.00% | £30,897 | £824 |
| Henderson Far East Income | Asia Pacific Ex Japan | 11 | 8.00% | 6% | 132.80% | £23,283 | £801 |
| Edinburgh Investment | UK Equity Income | 14 | 8.00% | 5% | 147.40% | £24,743 | £798 |
Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout. | |||||||
