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Income investment trusts?

Investment | Investment Trusts Helpful? 8

Asked by peter48, submitted 28 February 2010.

Open Quote I was thinking of investing in a Investment Trust which would give me some extra income (preferably ISA ). I am 61 and will have mainly pension money once I retire. So this is an additional and smaller source. I appreciate that there are a few recommended equity income funds like Invseco, Armetis and Newton but instead I fancied an Investment Trust and was drawn to the idea of something in the Global Growth & Income sector as they are more diversified than just UK Growth and Income. I wondered too if such Investment Trusts pay out a regular monthly income?End Quote

Answered by Justin on 08 March 2010

I’m not sure an investment trust would offer any significant benefit over a unit trust in this instance. If the investment trust borrows to invest (known as ‘gearing’) then it might pay a higher dividend than a comparable unit trust, but this would also mean larger relative losses if markets fall. Likewise, you could benefit if the investment trust’s share price increases relative to the net value of the underlying assets, but if it moves in the other direction you’ll lose money, independently of the underlying asset performance. Neither of these aspects is necessarily bad, they just increase overall risk – something you may be keen to avoid.

As for charges, you’d expect investment trusts to be cheaper (primarily because they don’t pay sales commissions). However, buy a unit trust through a discount broker who rebates initial and trail commissions and you’ll probably find overall costs to be broadly similar. Bear in mind that most stockbrokers charge for self-select ISA wrappers (required for holding investment trusts) , so shop around for a good deal. You'll probably find Alliance Trust Savings and iii.co.uk to be amongst the cheapest, as neither charges a wrapper fee and both have low dealing charges.

Whichever you buy, opting for the diversity of a global income fund seems sensible – especially if you already have UK stockmarket exposure via other investments.

Within the AIC Global Growth & Income sector I’d suggest looking at the F&C Managed Portfolio Trust, which invests in a range of investment trusts to provide good diversity, and the Murray International IT, which invests globally in a combination of large companies and fixed interest investments. Both trusts are run by experienced managers and pay income quarterly - I'm afraid there's no monthly income options in this sector.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (3) - To post a comment please register or login .


Comment by peter48 at 12:59pm on 09 Mar 2010:

Many Thanks - interestingly I had also began to warm to Murray International IT and noticed it has had a few mentions in the Money Observer. Also thanks for mention of iii.co.uk which seemingly offers some good terms. I can't wait to get my ISA started and I really like the idea of 'self select' rather than being with just one outfit.


Comment by justin at 5:26pm on 09 Mar 2010:

You're welcome. The only downsides I've come across with the iii.co.uk self-select ISA is that it's not the cheapest if you also want to hold unit trusts and should you decide to transfer to another self-select ISA provider in future there's a £10 per stock charge - neither should be a deal-breaker in your case, but just so you know.

Hope the invesment goes well and if you do use iii please leave some feedback in our user reviews section. It'll help other readers as well as me! (I haven't used iii and am curious what their service is like).


Comment by Mickey at 10:47am on 25 Mar 2010:

I don't think that I am allowed to reproduce the recommended income portfolio from the magazine 'Investment Trusts' but the following information may be of value. The portfolio contains 10 IT's and at the last report had a yield of 5% alongside a capital gain of 45% compared to an All-Share Index gain of 39.1% over the same period of 9 months. If considering IT's for income then a look at this portfolio may be useful, it is available from investment-trusts-magazine.co.uk. I have no personal or business interest in the company but do subscribe to it. Hope that helps,
Mickey