Not naval gazing that’s a different subject altogether.

by Kyle Caldwell from interactive investor

A year ago, I selected 10 investment trusts with the aim of achieving £10,000 of annual income in 2024.

Collectively, the hypothetical portfolio yielded 5.24%, meaning that a sum of £195,000 was required to attempt to hit the target.

While income is the priority, I’m also keen to try and strike the right balance from a total return perspective.

The 2024 line-up fell slightly short of the target, with £9,921 of income generated. This was down to less income than expected from Balanced Commercial Property, which was delisted in mid-November after being taken over by US private assets firm Starwood.However, given BCPT’s strong share price performance, up 38.2% in 2024 until its delisting, some of those gains could have been used to make up for the shortfall.

In terms of overall total returns (including reinvested dividends), the portfolio returned 9.4% in 2024. 

Before revealing the line-up for the £10,000 income challenge in 2025, let’s look at how last year’s constituents fared.

How the 2024 portfolio fared

It’s been a tough couple of years for the investment trust sector, with the average discount standing at around -15%. The discount reflects the gap between an investment trust’s share price and the value of its underlying investments (the net asset value or NAV). When a trust’s share price is above the NAV, it trades on a premium, resulting in new investors paying more than the underlying assets are worth.

However, with the hypothetical income portfolio it’s pleasing to see only two funds in the red in 2024, Greencoat UK Wind  UKW 0.42% and Utilico Emerging Markets Ord UEM2.39%, with respective share price total return losses of -8.6% and -3.1%.

Greencoat UK Wind suffered after investor sentiment towards renewable energy infrastructure soured. This led the discount to increase, from around -13% at the start of 2024 to over -20% at the start of 2025.

Since interest rates started rising in late 2021, the renewable energy infrastructure sector was impacted and experienced less demand from investors. As interest rates rise, so do bond yields. As a result, income seekers have more options and can take less risk, as the safest types of bonds, UK and US government bonds, offer yields of around 4.5% compared to virtually nothing when interest rates were at rock-bottom levels. 

The hope is that falling interest rates will act as a catalyst for a change in fortunes for the sector, as well as other investment trust strategies that have been out of favour.  

Utilico Emerging Markets’ performance was not helped by its discount moving from around -15% to around -20% (from the start of 2024 to the start of 2025). Investor sentiment towards emerging markets has been knocked by continued geopolitical tensions and the eruption of war in the Middle East.

After Balanced Commercial Property, the second-best performer was 

JPMorgan Global Growth & Income Ord  JGGI, up 19.8%. Among the trust’s winners in 2024 were its top four holdings among the US technology giants capitalising on advancements in artificial intelligence (AI); Microsoft Corp MSFTAmazon.com Inc AMZN, NVIDIA Corp NVDA0. and Facebook-owner Meta Platforms Inc Class A META.

Diverse Income Trust Ord  DIVI

 Came second in terms of performance, up 15.9%. Gervais Williams, its fund manager, said the return was driven by smaller company shares starting to stage a recovery after a couple of tough years as interest rates rose. He picked out Galliford Try Holdings GFRD and Yu Group YU. as two stocks that stood out in performance terms.

In third place was TwentyFour Income Ord  TFIF

up 12.9%. This specialist bond fund aims to generate attractive risk-adjusted returns principally through income distributions. This objective was certainly achieved in 2024. It invests in UK and European Asset-Backed Securities that have high yields and are floating rate (meaning they benefit from interest rises). Therefore, the higher interest rate environment has benefited this fund.

Elsewhere, City of London Ord  CTY

Delivered 10.6%, followed by UK equity income peers 

JPMorgan Claverhouse Ord JCH0 and Merchants Trust Ord MRCH, with gains of 8.3% and 3.9%.

Finally, global equity income trust Henderson International Income Ord  HINT

returned 5.1%.