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Stocks and Shares ISA investment ideas – 3 investment trusts

Looking for more ISA investment ideas? Here are three investment trust ideas to help make the most of the ISA allowance this tax year.
Five investment trusts graphic

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.

This tax year’s ending 5 April, and that means your time is running out to use your available ISA allowance before it’s gone forever.

A Stocks and Shares ISA is one of the best ways to help grow your wealth over the long term, mainly because you don’t have to pay income and capital gains tax.

If you decide to use your ISA allowance with a Stocks and Shares ISA this tax year, your next decision is always where to invest it.

One way to invest is to use investment trusts.

Here are three investments trusts you could consider for a Stocks and Shares ISA.

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. ISA and 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 add risk. Investors should only invest in them if they have the time and knowledge to carefully select and monitor them. They should always be held as part of a diversified portfolio.

Investors should be aware the trust can trade at a discount or premium to the net asset value (NAV). They can also use gearing (borrowing to invest). This can boost gains, but also increases losses – it’s a higher-risk approach.

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1

City of London Investment Trust

UK equity income investment trusts are a convenient way to invest in a mix of dividend-paying UK companies, and access one of the highest-yielding stock markets in the world.

Equity income trusts can be a great addition to an ISA portfolio for different reasons.

You can take the pay-outs to supplement your income and have a bit of extra cash in your back pocket. Or if you’re targeting growth and aiming to build your portfolio for longer, reinvesting dividends can help grow your pot thanks to compounding.

Job Curtis has managed City of Lonon Investment Trust for over three decades, investing in good quality, well-managed companies, bought at reasonable share prices.

Curtis likes bigger, more stable companies which usually have multinational operations that are strong enough to weather economic storms and still pay dividends. This gives the trust the exposure to both domestic and global growth.

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 open-ended funds to smooth out the ups and downs of the stock market and help maintain a rising and sustainable income.

City of London Investment Trust has increased its dividend for 57 years, the longest record of any investment trust. It currently yields 5.12%, but remember yields and dividends are variable and aren’t a reliable indicator of future income.

Curtis is part of a big, experienced, and well-resourced team of income investors at Janus Henderson focusing 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.

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2

JPMorgan Emerging Markets Investment Trust

Emerging markets have strong growth potential. So, investment trusts focused on this area are more appropriate for ISAs with a long investment horizon.

Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform these countries. Domestic consumption is set to be a key growth driver over the coming years, helped by a young, growing population, and rising wealth.

These countries have also become hotbeds of innovation and some companies based there are at the forefront of technology.

This development is expected to continue over the years, which could provide exciting growth opportunities for investors prepared to accept the higher level of risk involved.

JPMorgan Emerging Markets Investment Trust could be well-placed to take advantage of the changes taking place across these markets. It's managed by experienced investors Austin Forey and John Citron, with a big team of analysts behind them.

Investing in emerging markets does come with risks though, especially because their political, economic, and regulatory environments are different to developed markets. This can also create more volatility than developed markets.

The managers focus on companies with good cash flows and low debts. We think this is a good approach to investing in these markets. The trust provides diverse exposure to countries ranging from China and India to Taiwan and Brazil.

The trust is a more adventurous way to try to grow wealth over the long term. It could help diversify a global portfolio focused on long-term growth and sits well next to trusts that mainly invest in developed markets.

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3

Scottish American Investment Company

Global investment trusts give a good foundation to an investment portfolio focused on long-term growth, income, or both. Investing in companies globally provides a good level of diversification in a single trust.

Scottish American Investment Company is one of the oldest investment trusts around, launching in 1873. James Dow and Toby Ross, the current managers, search globally for companies with the potential for sustainable growth and a reliable dividend.

The aim is to grow income and capital over the long term by mainly investing in company shares. But they also invest in other assets like property, infrastructure, and bonds, which makes it different from other global equity trusts.

The trust provides broad exposure to a range of companies in mostly developed markets, like the US and Europe. Though it does also invest in higher-risk Asian and emerging markets. These companies have to demonstrate two key traits – a dependable income stream and the potential for above-inflation profit growth. They also need to show resilience through the economic cycle.

The trust provides useful diversification by investing in a portfolio of UK commercial property and some global bonds, which includes riskier high-yield and emerging market bonds.

The managers also invest in some infrastructure and property shares to help diversify the income paid to investors and deliver inflation beating growth.

The current yield is 2.82% and the trust has increased its dividend every year for 50 years. But remember yields are variable and aren’t a reliable indicator of future income.

Given its growth bias, it could work well alongside ‘value’ funds or investment trusts investing in unloved companies to form part of an income-focused portfolio.

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Written by
Kate-Marshall
Kate Marshall
Lead Investment Analyst

Kate leads a team of Investment Analysts and is a member of the Senior Research Team. She provides oversight and challenge to fund selection across all sectors on the Wealth Shortlist, and votes on all proposals.

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Article history
Published: 19th March 2024