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Five investment trusts to watch for 2024

HL’s experts have picked five investment trusts for investors to watch in 2024 and beyond.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

2024 is not going to be a year of rapid or sustained economic growth. Market consensus in recent weeks seems to have shrugged off recession fears and is pricing in a goldilocks scenario, where central bankers cut interest rates but not because they are forced to by an economic hard landing. We aren’t quite as optimistic, and our five trusts to watch for 2024 have a cautious tone.

But that shouldn’t stop you investing – while volatility is likely to continue through 2024, on a long-term view this could be a great opportunity to pick up reasonably-priced stocks with international revenues, attractive dividends, good dividend cover and robust balance sheets.

The experts on our investment research team have picked five investment trusts to watch for 2024 and beyond.

Investing in these trusts isn’t right for everyone. Investors should only invest if the trust’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.

You should understand the specific risks of a trust before investing, and make sure any new investment forms part of a diversified portfolio.

This 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 so you could get back less than you invested. Past performance is not a guide to future returns. If you’re not sure an investment is right for you, speak to a financial adviser.

Information correct as at 12 December 2023 unless otherwise stated.

Closed-ended funds can trade at a discount or premium to the net asset value (NAV).

All of the investment trusts featured here have the flexibility to use gearing (borrowing money to invest), which increases risk if used because any gains or losses are amplified. City of London, Scottish American Investment Company, JPMorgan Emerging Markets Investment Trust and HICL Infrastructure all reported use of gearing in their latest publicly available accounts.

All of the investment trusts featured also have the flexibility to use derivatives, which increases risk if used.

1

Personal Assets Trust

Preserving capital in a volatile year

Run by Sebastian Lyon and Charlotte Yonge at Troy Asset Management, this is a multi-asset investment trust that aims to preserve capital – that is, not lose money when the market takes a downturn – and focuses on total returns for shareholders. Coming into a year where we think the global economy will be challenged and markets volatile, we wanted to choose a trust that invests in a mix of equities and lower risk assets such as government bonds, gold and cash.

While the trust contains a diverse range of investments, it is concentrated. This approach means each investment can contribute significantly to overall returns, but it can increase risk.

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Asset Allocation

Source: Troy Asset Management factsheet as at 31 October 2023

The managers of the trust use what is called a discount control mechanism to buy back shares when the trust is trading at a discount and issue shares when it is trading at a premium to net asset value. The aim of this is to reduce the volatility of the trust’s share price in relation to the underlying value of its holdings.

2

City of London

Diversification into an undervalued market

This UK equity income investment trust is run by Job Curtis – one of the most highly regarded managers in the sector. The trust has been named as a Dividend Hero by the Association of Investment Companies, which means it has grown its dividend for more than 20 years in a row. In fact, this trust has grown it for more than 50. The managers of the trust have the ability to reserve investment gains in previous years to boost dividend payments in years when the underlying companies may cut payouts. Though this income could vary and is not guaranteed.

The trust aims to provide shareholders with both income and growth by investing in large, good-quality companies listed in the UK, although the manager can invest up to 20% overseas when he finds good opportunities. The top 10 investments feature well-known businesses such as HSBC, Tesco and Shell. While 60% of the portfolio’s value is invested in large companies with a market capitalisation of over £5 billion, the remainder is invested in medium-sized and small companies. This can be associated with more risk.

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Top holdings

% of Fund

Shell

4.49%

BAE Systems

4.23%

RELX

3.69%

Unilever

3.68%

HSBC

3.44%

British American Tobacco

3.28%

BP

3.20%

Diageo

3.07%

AstraZeneca

3.00%

Tesco

2.69%

Source: City of London factsheet as at 31 October 2023.

The trust has the ability to issue and buy back shares and does so to control the trust trading at a wide premium or discount to net asset value.

We think the UK is currently undervalued, and this could make a good addition to a portfolio in need of diversification away from US equities.

3

Scottish American Investment Company

Another income pick – this time a trust that is mostly invested in global equities, but also holds bonds and property. This asset class and geographical diversification reduces risk for shareholders.

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Asset Allocation of Total Assets

Source: Baillie Gifford factsheet as at 31 October 2023.

The trust is run by Baillie Gifford fund managers James Dow, Toby Ross and Ross Mathison. Between them they aim to deliver both income growth and capital growth for shareholders.

The managers look for companies they think have sustainable growth prospects and a dependable income stream. The dividend growth record of the trust is impressive: 49 years of increases and 80 years without cuts. Though income can vary and is not guaranteed.

The investment trust structure gives managers the flexibility to also invest in higher-risk unlisted companies, but they do not anticipate doing so for the foreseeable future.

4

JPMorgan Emerging Markets Investment Trust

Experienced management team

This trust aims to deliver long-term growth through investing in both large and higher-risk small companies from a diverse range of emerging economies such as India, China, Taiwan, and Hong Kong.

The managers have nearly 50 years of investing experience between them, with lead manager Austin Forey running this trust for 29 years. They are supported by a large specialist analyst team who conduct thousands of company meetings every year. They look for high-quality companies with long-term growth prospects that they aim to hold for a long time.

It’s important to note that while emerging markets offer opportunities for growth, they're typically more volatile than developed markets.

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5

HICL Infrastructure

Infrastructure investments with dependable cashflow

This trust aims to provide investors with a stable, sustainable income over the long term, along with some capital growth.

It invests in infrastructure assets that are vital to communities, covering sectors like transport, utilities and healthcare. The managers look for investments with dependable cashflow, which are providing essential public services with limited competition. The majority of the trust’s assets are in the UK, with other investments in Europe, North America, and New Zealand.

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Asset Allocation of Total Assets

Sector

% of Fund

Accommodation

9%

Education

12%

Electricity and Water

15%

Health

23%

Fire, Law and Order

4%

Transport

31%

Communications

6%

Geographic Location

% of Fund

UK

64%

EU

17%

North America

13%

Australia/New Zealand

6%

Source: HICL factsheet as at 31 March 2023
How to invest in these investment trusts

One way to invest for the long term is by using your ISA allowance.

Investment trust shares held in a Stocks and Shares ISA aren’t subject to UK income tax or capital gains tax. By saving tax, your money can work harder for you. You can pay up to £20,000 into an ISA this tax year. There’s a 0.45% charge for holding investment trusts in the HL Stocks and Shares ISA, capped at £45 per annum. Tax rules for Stocks and Shares ISAs can change and their benefits depend on your circumstances.

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Written by
Emma-Wall
Emma Wall
Head of Investment Research & Analysis

Emma's responsible for developing and implementing the investment processes for Hargreaves Lansdown Asset Management, including the Wealth Shortlist.

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Article history
Published: 13th January 2024