3 investment trust ideas for a Stocks and Shares ISA

A Stocks and Shares ISA is one of the best ways to help grow your wealth over the long term.

ISAs offer a way to shelter your investments from UK income and capital gains tax. It means you can make the most of your investments.

The deadline to use this tax year’s ISA allowance is 5 April.

If you decide to shelter your money from tax in an ISA, your next decision is where to invest it. One way to invest is to use investment trusts.

In this article, we share three investment trust ideas you could consider for a Stocks and Shares ISA.

These ideas should be thought of as potential building blocks for portfolios invested for the long term. By long term, we mean at least five years.

You don’t need to decide where to invest straight away though. You can secure your ISA allowance with cash now and decide when and where to invest when you’re ready.

As long as you add money by 11:59pm on 5 April, it will count towards this year’s allowance.

FIND OUT MORE ABOUT THE HL STOCKS AND SHARES ISA INCLUDING CHARGES

This article isn’t personal advice or a recommendation to invest. Remember all investments and any income they produce can fall as well as rise in value – you could get back less than you invest. Tax rules can change, and the benefits depend on individual circumstances. If you’re not sure an investment is right for you, ask for financial advice.

3 investment trust ideas

Investment trusts can sometimes invest in specialist areas like smaller companies, derivatives, and unlisted (private) companies which are higher risk. Investors should only invest in them if they have the time and knowledge to carefully select and monitor them, and as always, they should be held as part of a diversified portfolio.

WHAT IS AN INVESTMENT TRUST?

Personal Assets Trust

Sebastian Lyon likes to keep things simple. He aims to shelter investors' wealth just as much as grow it. Rather than trying to shoot the lights out, the trust aims to grow investors' money steadily over the long run, while limiting losses when markets fall.

It tries to experience smaller ups and downs than the broader global stock market or a portfolio that's mainly invested in shares.

The trust is focused around four ‘pillars’.

The first contains large, established companies Lyon thinks can grow sustainably over the long run, and withstand tough economic conditions.

The second pillar is made from bonds, including US index-linked bonds, which could shelter investors if inflation rises. Some of the fund is also invested in traditional UK government bonds (gilts).

The third pillar consists of gold-related investments, including physical gold, which often acts as a 'safe haven’ during times of uncertainty.

The final pillar is ‘cash’. This offers important shelter when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.

Lyon has tended to focus on companies based in developed markets, like the US and UK. This includes some of the world's best-known companies with highly recognisable brands. The manager has the flexibility to use derivatives and gearing (borrowing to invest) which, if used, adds risk.

We think the trust could form the foundation of a broad investment portfolio, bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio.

MORE ON PERSONAL ASSETS TRUST, INCLUDING CHARGES

VIEW PERSONAL ASSETS TRUST KEY INFORMATION DOCUMENT

City of London

Long serving manager of over three decades Job Curtis invests in good quality, well-managed companies, which can be bought at reasonable share prices.

He likes larger, more stable companies which often have multinational operations that are robust enough to weather economic storms and still pay dividends. Curtis thinks these are the types of companies that can support their dividends through profits and can also generate enough cash to invest for growth. This helps UK investors invest in global growth through the portfolio’s overseas revenues.

There’s some direct overseas exposure too, as Curtis takes advantage of the trust being able to invest up to 20% of its assets overseas. This could include companies based in higher-risk emerging markets.

Investment trusts have more flexibility than funds to smooth out the ups and downs of the stock market and help maintain a rising and sustainable income.

The City of London investment trust has increased the dividend it’s paid to investors for over 56 years, the longest record of any investment trust. As with any investment, dividends are never guaranteed and past performance isn’t a guide to the future.

The managers can use gearing (borrowing to invest). This can boost gains, but also increases losses – it’s a higher-risk approach.

Curtis is part of a large, experienced and well-resourced team of income investors at Janus Henderson and is focused on providing long-term growth in income and capital. We think the trust could form part of an income portfolio or a broader portfolio looking to add investment in larger UK companies.

MORE ON CITY OF LONDON, INCLUDING CHARGES

VIEW CITY OF LONDON KEY INFORMATION DOCUMENT

Murray International Trust

abrdn’s Bruce Stout has been lead manager of the trust since 2004. Stout aims to grow income and capital over the long term by investing in companies from around the globe, as well as investing in some bonds.

There’s an emphasis on companies with resilient business models, a unique set of advantages over the competition and experienced management teams. These are the key characteristics Stout thinks makes for high-quality, financially robust companies that have the potential to grow their earnings and dividends over the long term.

The trust invests more in higher-risk emerging markets than some peers. After the US, it invests most in Asia Pacific ex Japan.

Stout doesn’t have a yield target for the companies he invests in. Instead, the trust blends companies with higher yields, and those with lower yields but with more potential for income growth.

The trust has increased the dividend it’s paid to investors for 17 years. However, as with any investment, dividends can fall at any time. The managers can also use gearing (borrowing to invest). This can boost gains, but also increases losses – it’s a higher-risk approach.

We think the trust could provide useful diversification to an investment portfolio investing in more traditional income hunting grounds, like the UK.

MORE ON MURRAY INTERNATIONAL TRUST, INCLUDING CHARGES

VIEW MURRAY INTERNATIONAL TRUST KEY INFORMATION DOCUMENT

Looking to invest in any of these investment trusts?

Use the HL Stocks and Shares ISA to shelter up to £20,000 this tax year.

• Save tax – grow your money without worrying about UK income and capital gains tax.
• Check in anytime – manage your ISA online or with the HL app.
• Invest for your future – choose your own investments or leave it to the experts.

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