As the Autumn Budget approaches, speculation and rumors about possible changes are swirling.

Ryan Lightfoot-Aminoff, an investment trust research analyst at Kepler Partners, advises investors to look beyond the Budget and focus on the positive opportunities instead.

The impending Budget, along with numerous bleak forecasts, has complicated investment decision-making.

Adding to the complexity is the unexpected strength of the UK’s main market, the FTSE 100 Index, which has delivered remarkable returns in 2025.

The market has achieved a total return of 20% up to November 12, surpassing even the highly-regarded S&P 500 Index in the US, which yielded a 17% return.

This success has brought the FTSE 100 close to record highs, further buoyed by the emergence of the first initial public offerings (IPOs) in some time.

With the Autumn Budget looming, there is understandably a mass of speculation and rumours about the changes we will see

However, these positives stand in sharp contrast to the downbeat sentiment amongst the wider public, exacerbated by factors including weak economic growth – Q3 saw just 0.1 per cent GDP growth – political turmoil and fears over further tax rises in the Budget.

While this backdrop inevitably creates nervousness about investing in the UK, there are still attractive pockets of opportunity that should not be dismissed – particularly in the form of investment trusts. 

The closed-ended structure has given way to several strategies that can continue to provide compelling investment opportunities regardless of the wider UK backdrop and have delivered excellent shareholder returns over the past few years.

A trust focusing on micro-caps 

The first example is Rockwood Strategic (LN: RKW), an investment trust managed by Richard Staveley, focusing on micro-caps – the smallest companies in the market. 

At the smaller end of the market, performance is usually a result of company-specific factors, rather than being contingent on the wider economic picture. 

Richard’s approach looks to build on this, as he often takes sizeable stakes in his holdings and engages with the management teams to help instigate a recovery, rather than waiting for one to happen, unlocking shareholder value.

Ryan Lightfoot-Aminoff, research analyst at Kepler Partners, says investment trusts could be a light in Budget-related darkness

One example of this is Funding Circle, which Richard first purchased in early 2024. 

The turnaround plan involved the disposal of a loss-making US operation, along with the implementation of a cost-cutting programme and a new share buyback policy. 

The benefits of these policies came through quicker than expected, leading to a sharp share price rally later the same year, with shares up over 230 per cent in the 2024 calendar year. 

By comparison, the wider FTSE All Share Index produced a rather lacklustre 6 per cent return in the same period.

The investment trust structure is well suited to micro-cap investing. 

Being closed-ended – i.e. having a fixed pool of capital – means Richard doesn’t need to factor daily flows into potential investment decisions, affording him the time needed for his turnaround strategies to come to fruition, or for a catalyst to cause a share price rally. 

This strategy has produced exceptional returns; RKW has delivered 181 per cent in NAV terms in the five years to 13/11/2025, far in excess of the 65 per cent of the FTSE Small Cap (ex-IT) Index despite a tough backdrop for UK equities, demonstrating the alpha available in undervalued small-caps regardless of market backdrop.

Source: Morningstar

Banking on income 

Another way to generate good returns despite the gloom is through equity income trusts. 

These trusts usually target high dividend paying companies, which can provide a steady cash flow in more challenging periods and contribute to total returns. 

This benefit can be compounded if shareholders reinvest their dividends; should markets fall, shareholders will likely add to their investment at a more compelling valuation, boosting long-term potential.

Investment trusts are particularly well suited to this asset class given their ability to retain income in more fruitful years to smooth payments in more challenging periods through revenue reserves. 

The industry body, the AIC, has created a list of so-called dividend heroes, celebrating trusts that have increased their dividends for more than 20 consecutive years. 

Some trusts are even closing in on 60 years of continual dividend increases.

One trust that stands out for its dividend growth and high yield is Aberdeen Equity Income (LN: AEI). 

Here, manager Tom Moore targets three types of company: those that can grow their income, overlooked stocks with mispriced yields, and those undergoing a period of unrecognised change. 

This approach has enabled AEI to increase its dividends for 24 consecutive years, at an average growth rate of around 5 per cent per annum. 

Despite a strong rally over the near-term, the trust currently yields an attractive 5.9 per cent. 

The trust has also built up a robust level of revenue reserves over the years, which now stand at c. £10million, equivalent to just under a year’s worth of dividends. 

As such, AEI’s growing dividend is arguably well-supported regardless of the outcome of the Autumn Budget.

Source: Aberdeen

Value first

One factor contributing to equity income strategies’ ability to outperform in challenging times is that higher yielding stocks tend to trade at lower valuations. 

By targeting stocks at depressed values, managers are more protected from market falls as there is a ‘margin of safety’ already factored into share prices. 

To capture this benefit, investors could consider trusts with a ‘value focus’, potentially offering further protection.

Ian Lance and Nick Purves, managers of Temple Bar (LN: TMPL), are strong proponents of the value investment style, having maintained it throughout their career and over their tenure of TMPL.

That said, they still look for quality companies, with a strong emphasis on a business’s financial strength (i.e. cash flows and balance sheet), though they are disciplined on the price they are willing to pay.

This approach has benefitted performance in the past few years, as the higher interest rate environment has been a tailwind to the value investment style. 

TMPL returned 145 per cent in the five years to 12 November 2025, vs the FTSE All-Share Index return of 78 per cent and the MSCI UK Value Index returns of 123 per cent. 

This demonstrates how TMPL’s approach can outperform even its direct comparators in challenging conditions, as well as in more favourable times.

One factor that has likely contributed to these impressive returns is the trust’s gearing. 

This is effectively borrowing that can be used to gain more exposure than the trust’s capital to the market and is a key feature of investment trusts. 

Whilst this can amplify losses in more challenging times, it also adds to growth over the long-term, especially in rising markets. 

TMPL has had around 7 per cent of net gearing over the past few years, which has arguably helped performance, with TMPL comfortably outperforming several comparators.

Source: Morningstar

The past five years have seen some ups and downs for the UK, although ultimately, markets have weathered the storm to post strong returns. 

What these examples show us is how good strategies can deliver excellent performance even in challenging conditions. 

In these cases, the managers have exercised their stock selection skills to deliver outperformance despite the mixed conditions and have maximised the unique features of the investment trust structure to help generate attractive returns over time, demonstrating the attractions of the asset class. 

With this in mind, and in the context of a potentially critical next few weeks, there is a strong argument to be made that these trusts can perform despite the gloom.

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