Brave investors have beaten beat doom-mongers this year
Opinion by Hamish Mcrae
We’re halfway through the year, and my word it’s been a bumpy ride for investors.
If you had known on January 1 there would be a war in the Middle East, with the Strait of Hormuz closed and the oil price going to well over $100 a barrel, what would you have expected to happen to US share prices?
And had you known that Keir Starmer and Rachel Reeves would be on the way out, what would you have thought would happen to markets here?
You would surely have reckoned this all looked a bit hairy and decided it was time to de-risk your portfolio. You would sell some shares and switch to cash or something safe such as government bonds. And you would have been completely wrong.
The S&P500 index, the best measure of US equities, is up 9 per cent to date, while the FTSE 100 index is up 7 per cent. Allowing for dividends it would have returned more than 8 per cent.
Government bonds, by contrast, have been disappointing. US ten-year Treasury notes yielded 4.2 per cent in January and are at 4.5 per cent. The yield on ten-year gilts – UK Government bonds – has risen from 4.5 to 4.8 per cent.
Bumpy ride: We’re halfway through the year, and my word it’s been a bumpy ride for investors
Prices move inversely to yields and on my quick tally, allowing for the interest you’d receive, you would be down between 1 and 2 per cent on your investment.
What’s the explanation? What’s the message for the second half of the year, and what does this say about investing more generally
The simple explanation of what has happened to bond prices is to note that wars cost money in all sorts of ways and push up inflation, so investors want a bigger premium to lend to government.
For equities it is more complicated, as the UK and US are very different. American shares offer both the hope of technology-driven growth and solid profits for established corporations.
British-quoted companies also offer profit growth, but the key feature is that our market, by contrast, is a bargain basement.
The message for the second half is generally positive. The professionals in New York are bullish, with Morgan Stanley and Goldman Sachs both looking for the S&P500 to rise from 7,500 at present to 8,000 by year-end.*
In London there is more caution, for example with UBS suggesting that the FTSE 100 could go to 11,000 this year, up from today’s 10,679, but not far above the peak in February just before the Middle East war of 10,935.
Insofar as it is sensible to generalise, the big fund managers and investment advisers do not seem to rate the possibility of a share crash this year as very high. The overall view is that we are in a mature bull market for equities, but the forces that will cause it to end are not yet in place.
And investment more generally? Last week we had the latest annual Global Wealth Report from UBS, which assessed how global wealth had grown in 2025.
Among the headlines were that stock market gains last year created nearly a million more dollar millionaires. Also that global personal wealth rose nearly 11 per cent. And that Australia now ranks third-highest for median wealth.
As well as, more dismally, that allowing for inflation Britain had the sharpest fall in wealth of any country in the survey.
That’s because for most of us our homes are our biggest investment and since 2020 house prices have failed to keep pace with inflation.
Unpicking all this, the message I take away is that the enemy of people who want to try to build wealth, or even become comfortable enough not to have to worry about money, is indeed inflation.
It is not crashes in share prices, though they will inevitably come, for eventually global equities will produce positive real returns.
As long as people start saving as early as they can, keep adding to their pot and keep reinvesting the proceeds, compound interest will enable them to build real wealth – not to become billionaires but to be ‘the millionaire next door’.
But there’s another enemy. Governments not only permit inflation, they tax away paper gains even though these are only compensating for inflation and not real gains at all.
* Historically the S&P moves higher after the American Mid Elections.
Investment trusts can help generate income, deliver strong dividends, as well as give you exposure to private companies.
According to the Association of Investment Companies (AIC), an industry body that represents investment trusts, retail investors now own 26% of investment company shares, compared to 25% two years ago.
“Investment trusts are built for the long haul,” said Nadir Mirza of Tyndall Investment Management. “Pension capital demands patience, governance, and discipline – three qualities that sit at the core of well-run investment trusts.”
Investment trusts that focus on dividend-paying companies have always been a popular pick – and not just among income investors wanting a regular stream of income.
That income reinvested can be a significant boost for growth too. For example, in the UK reinvested dividends have made up around 67% of total returns over 20 years.
So when it comes to your self-invested personal pension (Sipp), which investment trusts should you add? Here’s what the experts say.
If you are still building your pension – known as the accumulation stage – a global equity trust makes the most sense, says Emma Wall, chief investment strategist at Hargreaves Lansdown.
“The JPMorgan Global Growth and Income trust is a good option, managed by Helge Skibeli who has more than 30 years’ experience, supported by two other managers in London and New York supported by analysts across various continents to help spot the best opportunities across the globe.”
The team looks for companies with attractive valuations, that offer significant potential for growth and are unlikely to suffer big share price volatility. The top 10 holdings will be familiar to investors. Microsoft, Amazon, Nvidia, The Walt Disney Co and Johnson & Johnson are among the largest positions.
Wall adds: “We like it because it has a core approach – neither growth or value biased – and a robust dividend policy paying out quarterly, which can be reinvested for accumulation or take an income for those already in retirement.”
Pete Walls of Unicorn Asset Management favours trusts with greater geographical diversification and “a bit less of the Magnificent 7.”
“In the prevailing, highly concentrated, world market, I have reservations about the fact that many of the global trusts have such a large exposure to the USA,” he said.
“The Brunner Investment Trust styles itself as an ‘all weather’ global equity portfolio. It’s been around for almost 100 years so there’s a good chance it will continue to prosper for long-term pension investors.”
Some of the trust’s top 10 holdings include Microsoft, payments giant Visa, energy stock Totalenergies, chip-maker Taiwan Semiconductor Manufacturing and hotel group InterContinental Hotels.
“Despite having a lower weighting to the rampant US market than some of its peers, portfolio performance has been good,” added Walls.
While the dividend yield is a modest 1.7% it’s dividend has increased year on year for the last 53 years. The trust has returned 73% over five years.
Investors who believe in a prosperous future for the UK might consider The Law Debenture Corporation, a trust suggested by Walls and Mirza.
The trust balances income stability with long-term growth potential, with around 83% in UK stocks.
Mirza said: “For a pension investor, it’s a compelling combination: dependable income, valuation discipline and genuine flexibility, underpinned by a structure designed to compound quietly over time.”
Its top 10 holdings include banking stocks HSBC and Barclays, car manufacturer Rolls Royce and mining firm Rio Tinto.
It has returned an impressive 100% over five years.
Walls added: “It’s been listed on the London Stock Exchange for more than 135 years, so once again it’s likely to be around for some time to come.”
This trust targets Japanese small and mid-cap companies trading below intrinsic value.
“The Nippon Active Value fund is a timely expression of Japan’s long-overdue revival,” said Mirza. “After years of corporate inertia, Japan is finally embracing reform – balance sheets are leaner, governance is improving, and management teams are starting to prioritise shareholder returns. The fund’s activist approach fits this environment perfectly.”
Mirza added: “This hands-on strategy has delivered strong NAV growth in a market that remains deeply under-owned by global investors. For pension investors, this is the kind of exposure that adds genuine diversification and long-term alpha potential – an active, conviction-led play on one of the few major markets still trading at a structural discount to its own potential.”
Top 10 holdings include medical supplies firm Hogy Medical, media company Fuji Media Holdings and environment product manufacturer Ebara Jitsugyo.
Should you wish to invest in a specific theme, you could plump for one such as Augmentum Fintech, suggests Dan Boardman-Weston, chief executive of BRI Wealth Management.
“This is a trust that may be suitable for those with a high appetite for risk and a long-term time horizon. It focuses on potential high-growth private companies in the fintech space.”
Augmentum has benefited from being a former shareholder in Interactive Investor. Its top 10 holdings include Tide, which operates banking services for small businesses and online challenger bank Zopa.
Augmentum trades at nearly a 50% discount to the value of its assets. The fund has lost 34% over five years.
“Those with a good appetite for risk and appropriate time horizon should consider a small position as part of a diversified portfolio,” Boardman-Weston added.
How to choose an investment trust for your pension
If you’re considering an investment trust for your pension then there are several things to help with your decision on whether to invest.
“First decide how much risk you want to take, and where in the world you want to invest,” said Laith Khalaf, head of investment analysis at AJ Bell. “Then it’s a question of comparing investment strategies and manager track records, as well as considering costs.”
What a trust invests in is crucial. The top 10 holdings and percentage of the trust’s value held in each company is typically easy to find on a factsheet, which is a document provided by the investment company and refreshed regularly.
You can view them online directly from the fund management company or on an investment platform such as AJ Bell or Hargreaves Lansdown.
Understanding a trust’s strategy is important. “You’ll want to understand how the fund manager aims to deliver a strong return over time without taking too much risk in any one area,” said Nick Britton, research director of the AIC.
“It can be useful to look at the trust’s record – though it does not guarantee future returns – and how it has performed in various market conditions. Investment trusts can borrow to invest, which can boost long-term growth but also adds risk, so check the trust’s current level of borrowing – known as gearing – and borrowing policies so you know how much extra market exposure you may be taking on.”
“As you get closer to retirement, capital preservation may become more important to you. At this time, many people think about reducing their weighting to equities, and there are some trusts that aim to preserve wealth by spreading your investment over assets like equities, bonds, alternatives and cash.”
Since investment trusts typically trade at either a premium or discount to their net asset value (NAV), based on the balance of supply and demand, you should take a look at the discount or premium on the trust.
Khalaf added: “This shouldn’t be a major decision driver for long term investors, unless it’s deviated substantially from the norm.”
The investment-trust structure was conceived in the mid-1800s to fill a gap in the market for a low-cost, mass-market investment vehicle. One of the first was Foreign & Colonial, founded by City of London financier Philip Rose. The entrepreneur had a revolutionary goal: to provide the “investor of moderate means the same advantages as the large capitalist”
In the 1800s, investing was largely the preserve of the wealthy, with limited options available to the smaller investor. Foreign & Colonial pooled investors’ money and invested it in a diversified portfolio, spreading risk across a basket of assets.
The closed-ended structure, which provided a stable pool of long-term capital, made these investment companies ideal vehicles for financing the expansion of the British Empire and the rapid industrialisation of the Americas. As global investment markets grew and diversified, the range of investment options available to investors with investment trusts expanded, and the range of trusts available also expanded.
Investment trusts have a fixed capital base
Investment trusts are structured as companies. They issue a set number of shares at the time of their flotation, and this forms a fixed capital base. Investors are then free to buy and sell the shares on an exchange. As the shares are freely traded and the asset base is fixed, trusts can trade at a premium or a discount to their underlying net asset value.
Open-ended vehicles, such as exchange-traded funds (ETFs), unit trusts and open-ended investment companies (Oeics) issue or eliminate excess shares at the end of each day to ensure the NAV and the share price match. This means there’s no room for a discount or premium to emerge.
This also means the capital base can shrink dramatically if the number of sellers consistently exceeds the number of buyers (and the price of shares in the fund falls). As the capital base shrinks, the vehicle has to continue selling assets to fund investment outflows. If those assets are challenging to sell, this can lead to a liquidity crunch. That’s why investment trusts tend to be the best vehicle for holding illiquid assets. They have no obligation to sell the assets, no matter how wide the discount to underlying NAV may become.
Some of the biggest trusts in illiquid sectors are the infrastructure trusts 3i Infrastructure (LSE: 3IN), Greencoat UK Wind (LSE: UKW) and the Renewables Infrastructure Group (LSE: TRIG). All of these trusts own portfolios of illiquid infrastructure assets, which generate steady inflation-linked cash flows.
Infrastructure isn’t the only asset class that lends itself well to the investment-trust structure. Trusts are ideally suited to owning portfolios of mixed assets, such as bonds, gold and stakes in hedge funds or private-equity investment funds. BH Macro (LSE: BHMU) has a position in the global macro hedge fund Brevan Howard, giving investors access to a fund that would otherwise be unavailable
HarbourVest Global Private Equity (LSE: HVPE)is just one investment trust in the private-equity sector, offering investors exposure to this asset class via the trust structure. RIT Capital (LSE: RIT) and Caledonia (LSE: CLDN)are two examples of trusts making the most of the flexibility offered by the structure. Both are majority-owned by their founding families and own a broad portfolio of assets, from private-equity holdings to direct investments in other companies and portfolios of equities.
The structure of the investment trust also lends itself well to borrowing money. Investment trusts that specialise in acquiring illiquid assets – such as wind farms, property and infrastructure assets – can borrow against those assets to increase growth and build the asset base. These companies can also borrow to invest in equities. Borrowing money to invest in shares can be risky, but trusts can often mitigate some of the risk by issuing long-term fixed bonds.
For example, Scottish American (LSE: SAIN) issued £95 million of long-term debt between 2021 and 2022 with a blended interest rate of under 3%, maturing between 2036 and 2049. The trust, which owns a portfolio of equities, as well as property and infrastructure via other investment trusts, used the cash to reinvest into the portfolio.
The ability to borrow money is particularly helpful for the real-estate investment trust (Reit) segment of the market. Reits are a version of the typical investment trust, but with tax benefits when the majority of the portfolio is deployed into property. Companies like Supermarket Income (LSE: SUPR)and PHP (LSE: PHP)have leveraged this structure to build property portfolios designed around supermarkets and healthcare facilities, respectively.
MoneyWeek has always preferred investment trusts to open-ended funds for the above reasons – and the fact that they have historically outperformed other actively managed, open-ended funds. However, this has started to change in recent years. Investment trusts, particularly in equities, have struggled to keep up with the performance of other funds. As a result, investors have drifted away, and discounts to NAVs have risen sharply.
But there’s still a place for trusts within investors’ portfolios. Thanks to the structure of trusts, they are invaluable to build exposure to specific themes such as small caps, emerging markets, property and infrastructure. There are virtually no mass-market alternatives to the infrastructure offering, and trusts such as BH Macro, RIT and Capital Gearing (LSE: CGT)offer the sort of portfolio diversification that just can’t be found elsewhere.
I’ve sold the SNOWBALL’s shares in FSFL for a profit of £621.00.
Mainly as it’s been a long wait for any news and if when there is news the funds will need to be re-invested, so it’s better to re-invest now, when there are some still above market yields available.
This FTSE 250 stock yields 9.6% — and has actually been growing its dividend
This high-yield FTSE 250 stock has exposure to some brilliant growth stories, as well as dividend payers. Our writer likes its passive income potential.
You’re reading a free article with opinions that may differ from The Twelfth Magpie’s Premium Investing Services
When it comes to looking for high-yield opportunities in pursuit of passive income streams, FTSE 250 stocks can be a fruitful hunting ground.
For example, one investment trust in the index already pays quarterly dividends that add up to a 9.6% yield. On top of that, it has been growing its dividend per share annually for the past few years.
A diversified portfolio with high-growth opportunities
The FTSE 250 stock in question is Henderson Far East Income (LSE: HFEL). As the name suggests, the investment trust is focused on the Asia-Pacific region.
That gives it possible exposure to plenty of opportunities that have strong growth stories. Indeed all three of the trust’s current largest holdings (MediaTek, Taiwan Semiconductor Manufacturing and SK Hynix) operate in the semiconductor space, currently booming on the back of AI demand.
Buying growth shares then selling them for a higher price down the line could be one way to fund dividends. Typically though, growth shares are not associated with high yields.
However, growth shares are not the only string to Henderson Far East Income’s bow. It also owns some lucrative dividend shares, like 5.7%-yielding Swire Properties.
This share’s cheaper than it was five years ago!
Despite steady dividend growth and a notably high yield, Henderson Far East Income’s share price has actually fallen 19% over the past five years.
More encouragingly, recent performance has been decent. The FTSE 250 stock is up 15% over the past year, outpacing the 9% seen in the index during that time.
Still, does the long-term value destruction indicate possible investor concerns about the sustainability of the bumper dividend?
Just because a company has had a steady history of regularly raising dividends does not mean it will keep doing so.
Just look at Guinness brewer Diageo as an example. Until several years ago, it had grown its dividend annually for decades. This year though, it sliced it in half.
I see long-term potential here
I certainly see risks for Henderson Far East Income.
Its heavy exposure to the semiconductor industry is one, if the bottom falls out of that heated market. On the plus side, as recent performance shows, it is an opportunity as well as a risk.
Weakening economic indicators in some large Asian economies suggest another risk. Any economic slowdown could eat into the prices of the shares in the trust’s portfolio — and also the ability of companies it has invested in to pay large dividends.
Yet stepping back to the bigger, long-term picture, I am upbeat about this high-yield FTSE 250 stock’s ongoing potential.
I continue to see Asia Pacific as having good long-term growth prospects and reckon Henderson Far East Income stands to benefit from that given its portfolio allocation.
For investors who are focused on trying to earn regular passive income streams from their share portfolio, I see it as a stock worth considering.
