Though the concept of investment trusts dates back to 1868, fresh insights reveal a rising interest among today’s investors in these financial vehicles.
Despite their reputation as somewhat traditional, younger investors are showing nearly double the enthusiasm for investing in trusts compared to the general investing population.
Investment trusts function similarly to investment funds by pooling resources, yet they differ by being publicly traded companies, with their shares available on the stock market.
Research from the fund manager Invesco highlights that a notable 55% of investors aged 25 to 34 are inclined to invest in an investment trust within the next six months, in contrast to 29% of investors across all age groups.
Moreover, while only 9% of individuals over 65 expressed interest in utilizing investment trusts, a significant 38% of those aged 18 to 24 did so.
This growing trend among younger investors may be influenced by some investment trusts’ focus on innovative and rapidly growing companies, including private firms that have yet to enter public markets.
For example, the flagship Scottish Mortgage Investment Trust backs Claude AI model maker Anthropic, TikTok owner ByteDance and Elon Musk’s SpaceX, which revealed plans for a potential $1.75trillion stock market float this week – the largest ever IPO, if successful.
Other trusts with high-profile private company stakes include, RIT Capital Partners, Harbourvest Global Private Equity, Monks and Schiehallion.
Some trusts also specialise in niche investment areas, such as Seraphim Space, or the selection of private equity, biotechnology and renewable energy investment trusts available.
Investmen trusts such as Scottish Mortgage, RIT Capital Partners, Monks and HarbourVest hold stakes in SpaceX, despite it not being listed on the stock market yet
The trend may also be driven by ‘financial influencers’, as investment trust holders were revealed to be more than twice as likely to use their information to make financial decisions.
Invesco’s survey revealed 36 per cent investment trust holders said they followed financial influencers, compared to just 14 per cent of other investors.
One in five adults have never heard of investment trusts, according to Invesco’s poll. Meanwhile, just 11 per cent said they could confidently explain what one is, compared to 22 per cent who reckoned they could explain cryptocurrencies. (We explain investment trusts below.)
Will Ellis, head of specialist funds at Invesco, said: ‘These findings highlight a fundamental challenge at the heart of the UK’s savings and investment landscape. This is not just an awareness issue, it’s a confidence gap.
‘Overcoming this barrier will require more than better tools and clearer literature. There’s a need for accessible, practical education to build confidence and help people understand both the role of investment products and the risks involved, so they can make informed long-term financial decisions.’
Finfluencers may be helping to fill this knowledge gap but those using social media for financial help should be wary of what they find and check their sources’ credibility carefully.
While some ‘finfluencers’ may share good information, others have been charged with giving illegal financial advice and fraud.
A crackdown by watchdog the FCA in late April saw a guilty plea from TV show Geordie Shore’s Aaron Chalmers for illegal promotions on social media. It also issued four targeted warning letters to individuals suspected of engaging in unauthorised financial promotions, 34 warning alerts, and 120 takedown requests after it identified 1,267 illegal financial adverts.
Data from TSB showed that 31 per cent of those who use social media have acted on financial advice they have seen – and 55 per cent of them lost money as a result.
Investment trusts and Junior Isas
Separate figures from platform Interactive Investor show the proportion of investors holding trusts drops as they move into the 25 to 34 age range.
According to Interactive Investor, 17.6 per cent of 18 to 24-year-olds hold trusts, but this drops to 12.7 per cent for 25 to 34-year-olds, and then to 8 per cent for those aged 45 to 54.
Kyle Caldwell, of Interactive Investor said: ‘Maturing Junior Isas are a factor, with parents picking investment trusts on behalf of their children.
‘When converted into adult Isas and once taking control of their own investments there is a tendency to look wider at other options, with exchange-traded funds (ETFs) seeing an uptick in demand, particularly for those in the 25-34 and 35-44 age categories.’
He said that younger investors should consider holding on to their investment trusts, however, as their structure comes with some advantages.
Caldwell added: ‘Investment trusts have various ‘bells and whistles’ that set them apart from other types of pooled funds, such as the ability to gear (borrow to invest) and the option of being able to hold back some income each year to smooth dividend payouts during lean periods.
‘Investment trusts have a lot going for them and greater awareness over how investors can benefit from their structural advantages would go a long way to try and convince the next generation of investors about their appeal.’
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What are investment trusts
Investment trusts are listed on the stock exchange, where their shares are traded in the same way as normal company shares, writes Simon Lambert.
Trusts are known as closed-end, meaning the number of shares is limited. Unlike an investment fund, the trust does not grow as new money pours in or shrink as investors cash out.
As shares are limited, an investment trust’s shares can be worth more or less than the sum of the trust’s investments that it is entitled to, known as its net asset value.
When a trust is in hot demand, its shares may be worth more than the net asset value, trading at what is known as a premium.
In contrast, if a trust is out of favour, its shares may be worth less than the net asset value, and trade at what is known as a discount.
This means that trusts can be seen as riskier than funds, as the share price does not always reflect the net asset value.
However, it can also be seen as an advantage for the trust’s manager, as they are not forced to sell assets at a low price to pay investors who suddenly rush for the exit, or buy more assets at a high price to accommodate investors who rush in.
An investment trust can borrow money to invest, known as gearing. If a trust does this, it magnifies returns – making gains bigger, but losses larger, too.
An investment trust can also retain some dividends in the good years to help keep pay outs up in the bad years.
This has enabled some investment trusts to build long records of raising dividend pay outs every year – the longest record of these so-called dividend heroes stretches to 59 years.
The first investment trust to launch in 1868 was F&C, which 158 years later is a global trust that allows investors to back companies around the world, including Nvida, Apple and TSMC, for a low 0.45 per cent annual charge.
