Once described as "one of the best-kept secrets in the financial services industry", investment trusts are battling to win back the small investor support they used to take for granted.
The demise of the investment trust sector has been talked of in the past, but it has always pulled through in the end, often with the help of the big institutions piling into what they consider a bargain basement.
However, this time it looks like being the private investor seeking income who rides to the rescue. A new breed of increasingly sophisticated savers, graduating from traditional deposit account investments, are taking a look at the trusts. Roddy Kohn of independent financial advisers Kohn Cougar, based in Bristol, says: "Investment trust income shares offer investors the opportunity to plan their financial needs creatively, by allowing them to control the level of risk and the amount of income to suit their personal circumstances."
In fact, as figures published by the Association of Investment Trust Companies (AITC) show, private investor funds going into income-orientated trusts have helped produce a significant difference in relative performance. The average discount - the difference between an investment trust's share price and the value of its underlying investments (its "net asset value") - on the investment trust sector as a whole has widened in the past four years from 3 per cent to 13 per cent.
But those trusts that combine their growth goals with a measure of increasing income distribution trade off much narrower discounts of 7 per cent. And those that put income growth at the top of their agenda have discounts of just 2 per cent to their net asset values. "This continues to show the versatility and strength of the sector and its suitability for private investors looking for additional income," says Michael Hart, director- general of the AITC.
At present, there are 21 trusts offering a combination of income and growth and another 12 focusing on higher income return. These tend to invest in UK shares and bonds that make high annual payouts.
Yields among high-income funds average 7.3 per cent. Some offer much more, including top performers such as Dartmoor and Abtrust High Income which yield 10.9 and 8.5 per cent respectively. And unlike traditional deposit accounts, investors have also seen growth in their original capital investment in recent years. Performance figures from Reuters show that pounds 1,000 invested three years ago would now be worth over pounds 1,690 if put into the Gartmore Scotland trust, or nearly pounds 1,660 in the Shires Income trust.
Investment trusts are easy to come by. You don't have to pay a visit to a stockbroker, although most are more than happy to help you pick out the ones most suitable for your investment needs. Increasingly popular are regular savings plans run by individual investment trust companies that allow you to invest through standing order or direct debit.
These are extremely flexible, and costs are low because scheme managers generally negotiate bulk-buy rates. This means they collect all the monthly buying orders from investors and put them through as one large deal to save money. Charges vary between the groups: some do not impose administrative costs on purchases, but levy a pounds 10 fee on sales.Reuse content