Why would I consider an investment trust?

Investment trusts aren’t one of the most well-known investment options, but they’re worth getting to know. Many have histories stretching back over a century, and all of them have unique advantages that simply aren’t available to other assets.
So what exactly are they, and why might you want to consider including one in your portfolio?

What is an investment trust?

An investment trust is different from a traditional fund. Instead of buying into a pool of assets directly, you’re buying shares in a company listed on the stock market. That company is run by a board of directors on behalf of its shareholders and hires professional managers to look after the money.

This structure comes with several advantages:

• Professional stewardship. Expert managers make day-to-day investment decisions, overseen by an independent board of directors whose role is to protect investors’ interests.
• Dividend flexibility. Investment trusts can save up to 15% of the income they make from investment returns in good years, creating reserves to help smooth dividend payments during instability. This gives them the potential to provide a steadier, more reliable stream of income over time.
• The use of gearing. Unlike funds, trusts can borrow money to take advantage of investment opportunities. While this can enhance returns, it also increases risk and vulnerability to market downturns, so is used selectively.
• A voice for investors. As a shareholder, you have the right to vote on important matters, from investment policy to board appointments. This means you can still have some say in what happens, without all the hard work of actually choosing the investments.

In short, investing in a trust means becoming part-owner of a business, not just a customer of a fund.

Consistent dividends

Many investment trusts have long track records of delivering reliable – and in some cases, rising – dividends, even through economic downturns. For investors on the lookout for income, this stability can be particularly appealing.

Some trusts are known as ‘dividend heroes’ because they’ve increased payouts year after year for decades, regardless of market conditions. We’re proud to be one of them, with 58+ years of consecutive dividend increases for our investors.

A long-term perspective

Investment trusts don’t face daily inflows and outflows of money from investors, so their managers can take a longer-term view.

They’re free to hold investments through volatile periods. This allows them to wait for value to emerge, rather than being forced to sell assets simply to meet redemptions. For patient income-focused investors, this long horizon can be a powerful advantage.

Premiums and discounts

Another distinctive feature of investment trusts is that their shares trade on the stock exchange, just like any listed company. This means the share price may differ from the underlying value of the assets i.e. the Net Asset Value (NAV).

If the share price is below the NAV, the trust is said to trade at a discount.

If the share price is above the NAV, it trades at a premium.

For investors, discounts can present opportunities to buy shares for less than the underlying assets are worth, while premiums may reflect strong demand or confidence in the trust’s strategy.

Governance

Strong governance is a huge part of the investment trust model. As a company, trusts must be accountable and answer to their shareholders, in a way that funds don’t have to.

Each trust has an independent board of directors whose job is to represent shareholders, ensuring managers are working for you and that their strategy remains aligned with investors’ interests.  At Alliance Witan, this is in addition to our investment manager WTW, who also oversee our fund managers and their allocations.

Investment trusts are also overseen by the Association of Investment Companies (AIC), which sets industry standards and promotes transparency. Together, these layers of governance help safeguard investors’ money and maintain confidence.

Making the most of their ‘closed-end’ structure

In an open-ended fund, it’s easier for investors to take their money in or out (known as liquidity). This is because there’s no set number of shares - their number goes up or down depending on investor demand. Investors can also buy them directly from the fund company.

However, this also gives close-ended funds an advantage. Because investment trusts have a fixed number of shares, they don’t have to worry about keeping large amounts of cash aside to meet investor withdrawals. Instead, they can use that cash to invest more of the portfolio into opportunities that could generate returns. This gives skilled fund managers greater freedom to back the ideas they most believe in.

The bottom line

Investment trusts combine professional management, independent oversight, and a structure that’s designed to form a solid foundation for most people’s portfolios.

For investors seeking income, trusts’ ability to smooth and sustain dividends is an added plus. For those with a long-term mindset, their flexibility and closed-end nature can provide powerful advantages.

Like any investment, they come with risks, whether that’s the use of gearing or the potential for shares to trade below NAV. But for many, the combination of governance, consistency, and opportunity makes them a strong and hard-working option.

Issued by Towers Watson Investment Management Limited (TWIM), registered office Watson House, London Road, Reigate, Surrey RH2 9PQ. TWIM is authorised and regulated by the Financial Conduct Authority, firm reference number 446740. TWIM is the Alternative Investment Fund Manager (AIFM) for Alliance Witan PLC. TWIM is part of Willis Towers Watson.
Alliance Witan PLC is listed on the London Stock Exchange and is registered in Scotland No SC1731. Registered office, River Court, 5 West Victoria Dock Road, Dundee DD1 3JT. Alliance Witan PLC gives no financial or investment advice. © Copyright Alliance Witan PLC. Tel: 01382 938320.
 
This information is for informational purposes only and should not be considered investment advice. The views expressed are the opinion of TWIM and are not intended as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell any securities. The views expressed were current as of end July 2025 and are subject to change. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. You should not assume that any investment is or will be profitable. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.