I have had a long-standing love affair with investment funds (I dare not tell my wife).
They were the personal finance instruments I was most interested in when I decided to make a career out of money journalism in the early 1980s.
It was my affection for them that helped me get a job on monthly adviser magazine Money Management – and they propelled me on to the money pages of the Sunday Telegraph three years later. I have not looked back since.
I still write about investment funds but not as much as I used to (other issues such as poor customer service and scams keep me busy). But it doesn’t stop me loving them. Although investment funds come in all shapes and forms, such as unit trusts and open-ended investment companies (Oeics), it is the investment trust vehicle which I think rules supreme. It has been around nearly 150 years – far longer than unit trusts and Oeics – and, bar the occasional hiccup, continues to serve the best interests of investors.
It is no coincidence that my individual savings account (Isa) and self-invested personal pension (Sipp) are dominated by holdings in investment trusts that steadily deliver the investment results I and many investors seek – namely long-term growth in both our capital and income. They are investments I am comfortable to hold through thick and thin. Political crises, stock market sell-offs and economic downturns rarely keep me awake at night.
What I love most about investment trusts is that they are under-stated, are rarely marketed by the asset managers who run them, and represent great value for money. At a time when increasing focus is on the high charges that many fund managers levy, this low-cost investment trust vehicle appears more attractive than ever.
There is nothing magical about investment trusts.
They are companies in their own right, listed on the stock market and with boards made of the great and good to hold the investment managers to account. Like other investment funds, they are invested across a broad range of companies. Indeed, they are somewhat boring. But that is their huge appeal. They are investments you can trust, which will rarely let you down in a crisis..
City of London, managed by giant investment firm Janus Henderson, invests primarily in companies listed on the UK stock market. It invests to generate a mix of capital return and income growth.
The £1.5 billion fund has an unbroken record of annual dividend growth going back 50 years, a remarkable record only matched by three other funds (all investment trusts) – Bankers, Alliance, and Caledonia Investments. No wonder the Association of Investment Companies (AIC), the investment trust industry’s trade body, has dubbed it one of 20 ‘dividend heroes’ (trusts with records of dividend growth in excess of 20 years). Its ongoing charge is a fraction above 0.4% – half that levied by most unit trusts and Oeics.
Edinburgh, managed by Invesco Perpetual, is also focused on the UK stock market and has a competitive ongoing charge (0.58%). Like City of London, it has comfortably outperformed the FTSE All Share Index over the past five and 10 years. Proof that low-cost active management can provide investors with better long-term returns than fashionable alternatives such as exchange traded funds, which track a specific stock market index.
The £5.6 billion Scottish Mortgage, managed by Edinburgh-based Baillie Gifford, is invested worldwide. It has a 34-year record of successive annual dividend increases, a low ongoing charge of 0.45% and a performance record that knocks spots off both rival global funds and the FTSE All Share Index.
Of course investment trusts, like all investments, are risky assets that can be undermined by stock market falls. But if you are looking to invest through an Isa or a Sipp, I urge you to consider them.
The less sexy the trust, the better. Boring will make you money. Go UK, go global and sleep easily ever after.
Maybe you will enjoy the same passionate love affair I am in the middle of. If you want details of all 20 ‘dividend heroes’, visit the AIC website (Theaic.co.uk). Alternatively, see "Latest dividend heroes revealed: including four Moneywise First 50 Funds".
* Member of the Moneywise First 50 Funds for beginners.
Here is the fund that Jeff is referring to: https://www.moneywise.co.uk/fund-information/Ednbrgh-IT-plc/ITEDIN