Investment Trusts Are Still a Good Place for Your Money

Why It Matters

The sector’s contraction reshapes access to illiquid assets and influences pension‑fund eligibility, yet robust returns signal that trusts remain a compelling vehicle for diversified exposure.

Key Takeaways

• 2023 trust return 16.1%, beating MSCI benchmark.
• Net asset outflows £18.9bn; only one new trust launched.
• Discount to NAV narrowed to 12.5% after 2% improvement.
• Consolidation improves quality but limits investor choice.
• Potential inflow rebound could trigger new trust issuance cycle.

Pulse Analysis

Investment trusts have long served as a bridge between retail investors and hard‑to‑access assets such as private‑equity, infrastructure and niche property. Their closed‑end structure allows managers to hold illiquid positions without daily redemption pressure, delivering a 16.1% total return in 2023—well above the MSCI All‑Countries World benchmark. The narrowing discount to net asset value, now at 12.5%, reflects both improved market sentiment and the strategic use of leverage, reinforcing the sector’s appeal despite broader market volatility.

However, the sector faces headwinds. £18.9 billion of net assets exited through share buybacks, managed wind‑downs and a wave of mergers, leaving only a single new issuance in the past year. Regulatory uncertainty compounds the challenge, as investment trusts remain excluded from the Pension Schemes Bill’s qualifying assets, limiting their attractiveness to defined‑contribution funds. Competition from low‑cost ETFs and global open‑ended funds has siphoned capital, while the government’s push for semi‑liquid Long‑Term Asset Funds raises questions about redemption flexibility and valuation practices in volatile markets.

Looking ahead, contrarian investors see opportunity in the sector’s contraction. Historical cycles suggest that once discounts compress further and performance remains strong, inflows will resume, sparking a new wave of trust launches. Asset managers may leverage consolidation to streamline operations and enhance research depth, but preserving some internal rivalry could foster innovation. If the sector can balance quality improvements with sufficient product diversity, it could re‑establish itself as a cornerstone of UK‑focused investment strategies for both retail and institutional participants.