Time for trusts: Why younger investors are opting for an investment vehicle as old as time
By Katie Ormrod
According to Interactive Investor, during the past 18 months, the newest generation of investors aged 18-24 have managed to consistently outperform all other age groups. You may be forgiven for assuming that these healthy returns are down to bright-eyed investors allocating their portfolios towards trendier (or riskier) assets like cryptocurrencies.
However, the research suggests that the cliché of young investors piling into risky assets may need a rethink. The report by ii found that these impressive gains are in fact down to the growing popularity of one of the oldest types of investment vehicles.
Interactive Investor has attributed the success of the newbie generation to their higher-than-average holdings of investment trusts in their portfolios. The stats show that investment trusts now make up around a third of portfolios owned by those under 25, compared to an average 23% across other age groups.
Hindsight often offers an interesting perspective. The recent past was dominated by the well-worn rhetoric of investment trusts only attracting an ‘ageing fan club’ amid calls for closed-ended vehicles to revitalise their image and sell themselves to the next generation. Fast forward just three years, and the headlines have changed dramatically, with younger investors taking advantage of the excellent returns that investment trusts have delivered.
It’s not just younger investors piling into trusts, however. Data from the Association of Investment Companies shows the industry as a whole, raised £14.8billion of new money in 2021.
So, what exactly is it about investment trusts that is capturing the attention of the UK’s newest investors?
The benefit of investment trusts is that they can access a much wider range of investments than other funds – particularly when it comes to illiquid assets like infrastructure and property, with some multi-asset trusts in the market offering a refined value investment approach across a broader swathe of assets, including song royalties and video game retailers.
In recent years, a new breed of investment trusts has emerged, offering access to high growth sectors like digital infrastructure and renewable energy sources, which are normally inaccessible to retail investors. These will certainly have captured the attention of younger investors looking for exposure to the innovative solutions set to power the future. As the net-zero agenda gains exponential momentum, it becomes clearer to see how investment trusts have gained popularity.
Also, investment trusts can keep back up to 15% of their annual income each year. In a year like 2020 where dividends were being slashed globally, investment trusts managed to maintain or even raise their dividend. They have proven their reliability in an increasingly volatile and unreliable market.
Of course, I’m biased, but I’d say a good old bit of PR might also have a part to play in younger investors uncovering the benefits of closed-ended vehicles. Investment trusts are increasingly allocating more budget to communications and marketing and are now getting good traction with the media and featuring regularly on best buy lists. This is putting them firmly in front of budding new investors, researching ways to make their money work harder.
The advice back in 2019 was that investment trusts needed to further broaden their appeal to attract the next generation of investors. By utilizing their unique structure to tap into sectors that younger investors care about, it seems they have managed to do just that.