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Best Investment Trusts UK – Invest with Zero Fees

If you’re looking to take a hands-off approach to the financial markets – it might be worth considering an investment trust fund.

In doing so, the trust will buy and sell assets on your behalf – allowing you to invest in a truly passive nature. This is especially beneficial if you have some money to invest but you don’t quite know how to choose individual stocks or bonds.

In this guide, we review the Best Investment Trusts UK. We also explain how trust funds work and how you can get started with an investment today.

Best Investment Trusts UK List

Below you will find which providers made our list of the best investment trusts UK. You can read a full analysis of each trust by scrolling down.

  1. Scottish Mortgage Investment Trust – Overall Best Investment Trust UK – Invest Now
  2. The City of London Investment Trust – Best Investment Trust UK for FTSE 100 Stocks – Invest Now
  3. Monks Investment Trust – Best Investment Trust UK for Long-Term Capital Growth – Invest Now
  4. Mercantile Investment Trust – Best Trust Fund to Invest in Small-to-Medium UK Companies
  5. Federal Realty Investment Trust – Best Trust Fund to Invest in US Retail-Based Properties

Best Investment Trust to Invest in Reviewed

In choosing the best investment trust UK for your needs – you need to do a bit of research. This is the ensure that the trust aligns with your financial goals and attitude towards risk.

For example, what assets does the trust fund invest in and what sort of financial returns has it made over the past five years? You also need to consider the annual fees charged by the fund and what the minimum investment is.

To help point you in the right direction, below we discuss a selection of the best investment trusts UK for 2021.

1. Scottish Mortgage Investment Trust – Overall Best Investment Trust UK

Launched in 1909 and owned by Baillie Gifford – Scottish Mortgage Investment Trust is one of the most established funds in this space. The fund – which mainly invests in stocks, typically carries between 50 and 100 assets at any given time. This comes from a broad range of markets and exchanges, albeit, the main objective is to outperform the FTSE All-World Index over a 5-year period.

Breaking down the fund’s portfolio, there are large holdings in Tesla (8.8%), Amazon (6.5%), and Illumina. There are also investments in Chinese companies such as Tencent Holdings, NIO, Meituan, and Alibaba Group. This ensures that you are well diversified across multiple economies.

SCOTTISH MORTGAGE INVESTMENT TRUST PLC

The Scottish Mortgage Investment Trust has performed very well in recent years. For example, 5-year returns stand at over 338% and 3-year returns at 143%. Over the past 12 months, the fund has returned over 133%. Although there is no performance fee attached to this UK investment trust – you will be charged an annual expense ratio of 0.36%.

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2. The City of London Investment Trust – Best Investment Trust UK for FTSE 100 Stocks

The City of London Investment Trust is even more established – with the firm launching way back in 1891. Unlike the previously discussed fund, this investment trust focuses on companies listed on the London Stock Exchange. It primarily looks to generate returns through both income trust dividends and growth.

The fund uses the FTSE All Share Index as its benchmark – which it will actively look to outperform.  The City of London Investment Trust is well diversified across many UK sectors and industries. With that said, 27% and 20% of its stocks are held in financials and consumer goods.

The City of London Investment Trust price

The rest is distributed across basic materials, healthcare oil and gas, telecommunications, and utilities. Looking at the trust’s portfolio, it holds 3.9% in British American Tobacco, 3.46% in Rio Tinto, and 3.4% in Diageo. There are also holdings in Royal Dutch Shell, Unilever, RELX, HSBC, BHP Group, and more.

When it comes to returns, this fund seems to be somewhat volatile. For example, in the financial year ending 2016, 2017, and 2019 – the fund generated attractive returns of 9.3%, 12.6%, and 20.5%. However, in the financial year ending 2018 and 2020 – the fund made losses of 8.5% and 11.8%.

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3. Monks Investment Trust – Best Investment Trust UK for Long-Term Capital Growth

If you are looking to build a long-term stock portfolio that focuses on long-term capital growth – the Monks Investment Trust might be worth considering. This trust fund – which was launched in 1929 – invests in a diverse basket of stocks from several marketplaces. Primarily, it concentrates on equities listed in the US and the UK.

Regarding the former, this consists of stocks such as Alphabet (Google), Amazon, Shopify, Microsoft, MasterCard, and Tesla. In terms of UK stocks, the Monks Investment Trust currently has holdings in BHP Group, Rio Tinto, and Ryanair. With that said, this investment trust also has exposure to various other international markets.

Monks best Investment Trust uk

For example, you have the likes of Naspers (South Africa), SoftBank Group (Japan), and Meituan Dianping (China). All in all, this is one of the best investment trust funds UK for those of you that wish to build a globalized portfolio of equities. The Monks Investment Trust is slightly more expensive than the market average – costing 0.48% per year.

This is, however, justified when you consider that you will be gaining access to multiple international economies. Furthermore, and perhaps most importantly – this investment trust has generated some very attractive returns in recent years. For example, had you invested in this trust fund 10 years ago – you would be looking at gains of over 320%. 5-year returns stand at 248%.

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4. Mercantile Investment Trust – Best Trust Fund to Invest in Small-to-Medium UK Companies

While the trust funds that we have discussed this far typically focus on large-cap stocks – some of you might want to gain exposure to smaller companies that are still growing. If this sounds like you, it’s worth considering the Mercantile Investment Trust. Put simply, this trust will invest in small-to-medium UK stocks listed outside of the FTSE 100.

This strategy comes with both its pros and cons. On the one hand, backing stocks with a smaller market capitalization does mean that your investment returns are going to be more volatile. But, the upside potential on these stocks are often much greater than established firms listed on the FTSE 100.

Mercantile best Investment Trust uk

Taking a closer look at its portfolio, the Mercantile Investment Trust has holdings in Intermediate Capital, Bellway, Softcat, National Express, and Electrocomponents. There are also holdings in Games Workshop, Countryside, Watches of Switzerland, Computacenter, and Dunelm Group.

In terms of sectors, this investment trust has a heavy focus on industrials (27%) and consumer services (23%). In terms of growth, this is another investment trust that has performed well in recent years. This stands at an average annualized return of 11.40% and 12% over a 10-year and 5-year period.

This is particularly attractive when you consider the benchmark average over the aforementioned periods was just 8.8% and 6.7%. This means that over the past 10 years, the Mercantile Investment Trust fund has outperformed the FTSE All-Share (ex FTSE 100, ex Inv Companies) benchmark with ease.

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5. Federal Realty Investment Trust – Best Trust Fund to Invest in US Retail-Based Properties 

All of the investment trust funds discussed so far have had a strong focus on stocks and shares. However, it’s also worth considering an alternative fund that targets other asset classes. One such example is the Federal Realty Investment Trust. This trust fund specializes in retail-based properties – such as shopping malls.

All US-based, the fund holds in excess of 100 large-scale properties – which consists of over 23 million square feet. It has malls scattered across New York, Los Angeles, Miami, Washington, Boston, and more. In terms of how this trust fund works, the provider makes its money in a similar nature to a property fund investment.

Federal Realty Investment Trust (FRT)

That is to say, tenants – which are retail stores, will pay rental to Federal Realty Investment Trust. In turn, you and your fellow investors will be entitled to your share of rental payments – proportionate to how much you invest. You can also make money when the value of the underlying properties approaches.

This will be reflected in the NAV (Net Asset Value) of the investment trust. Now, you might be thinking that in the midst of a global pandemic – investing in a trust fund that is involved in retail space is not the smartest idea. However, you do stand the chance to invest at a discount – based on current prices.

For example, the fund was priced at $129 per share before the pandemic came to fruition. At the time of writing, you can invest in the fund at just $100 per share. In addition to this, the fund must distribute 90% of its rental income to investors – so you will benefit from ongoing dividend payments.

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Alternative Best Investment Trusts UK

There are heaps of trust funds to consider in 2021, albeit, we have discussed five providers that we think stand out from the crowd – both in terms of performance and diversification.

However, there is a select number of other trust funds that we think are worth keeping an eye on – which you will find listed below:

  • Smithson Investment Trust: Invests in a global portfolio of small and medium-cap stocks
  • F&C Investment Trust & Global Trusts: Combines investments in the US, Asia Pacific, and European equities
  • Temple Bar Investment Trust: Focuses exclusively on UK-listed stocks from a variety of sectors and industries
  • Bankers Investment Trust: Seeks to outperform the FTSE World Index and pay dividends that outpace inflation
  • Edinburgh Investment: 80% focus on UK stocks with the balance held in international assets

You can find out more about the alternative best trust funds UK listed above by heading over to the provider’s website.

What are Investment Trusts?

In many ways, investment trusts are very similar to mutual funds. This is because they allow you to invest in the financial markets in a 100% passive nature. Once you invest, the trust fund will determine which assets to buy and sell – and when. Crucially, and much like mutual funds – investment trusts look to outperform a specific benchmark.

For example:

  • Let’s say that the investment trust is looking to outperform the FTSE 100 Index
  • In year one, the FTSE 100 grows by 9.5%
  • If the investment trust makes gains in excess of 9.5% – then it has achieved its target
  • On the other hand, if the fund grows at a slower rate than the FTSE 100 – then it is underperforming

Sticking with the same example as above, an investment trust that seeks to outperform the FTSE 100 will carefully select stocks that it believes represent viable long-term growth.

In other words, while a FTSE 100 ETF will buy all 100 companies listed on the FTSE, an investment trust might opt to buy just 50. This allows the trust to avoid companies in which it believes are undervalued and involved in adverse marketplaces – based on current economic conditions.

Making Money From the Best Performing Investment Trusts

When it comes to making money from an investment trust – the process is largely the same as a conventional fund. This is because the trust will be listed on a public stock exchange and trade just shares. For example, the Scottish Mortgage Investment Trust is listed on the London Stock Exchange.

city of london best investment trust uk

The aforementioned fund will have a share price that goes up and down throughout the trading week. This share price movement is based on the NAV of the fund – which is one of two ways in which you can make money.

Investment Trust NAV

The NAV of an investment trust is calculated by taking all of the assets held by the fund – and multiplying this by the current market price.

As a simplistic example:

  • Let’s say that your chosen investment trust is holding 100 million shares in Uniliver
  • Priced at £4 each – this means that the fund has £400 million worth of Unilever shares
  • The investment trust is also holding 50 million shares in AstraZeneca
  • Priced at £7 each, his means that the fund has £350 million worth of AstraZeneca shares
  • In total, this means that the investment trust has a NAV of £750 million

Now, in terms of how you make money through the NAV, this will happen if the assets held by the investment trust collectively increases.

For example:

  • You invest £5,000 into the investment trust fund
  • At the time of the investment, the fund has a NAV of £750 million
  • 12 months later, the NAV stands at £900 million
  • This means that the NAV has grown by 20%
  • On an investment of £5,000 – your money is now worth £6,000

In theory, an increase in NAV will be reflected in the share price of the investment trust. However, there is often a slight discrepancy between the two figures – which can either be in your favor (premium) or against you (discount). Plus, you also need to factor in the fees involved with the respective investment trust.

Best Investment Trusts for Income

On top of capital gains via an increased NAV, the best investment trusts UK for income also generate attractive dividend payments. This will, however, largely depend on the type of assets held by the fund.

For example, if the trust has a heavy focus on established dividend stocks, then the bulk of your investment returns will come in the shape of quarterly payments. The amount you receive will be proportionate to the size of your investment.

Here’s an example of how this works:

  • You have £5,000 invested in a trust fund that focuses exclusively on dividend stocks
  • At the end of the year, the fund has generated a dividend yield of 7%
  • On a £5,000 investment – you would have received dividends of £350
  • This would have been paid across four quarters

If you’re looking for the best investment trust UK for income, you should focus on portfolios that consist of high-yield dividend stocks, bonds, and real estate.

Why Invest in Investment Trusts?

If you are primarily interested in a passive investment strategy  – there are many options to choose from. On top of investment trusts, you also have mutual funds, ETFs, index funds, and even Copy Trading.

With that said, there are many benefits in choosing the best performing investment trusts over other fund types – which we elaborate on in more detail below.

Fees

First and foremost, investment trusts typically charge very competitive fees. In fact, because trusts need capital from outside investors – the fees charged are often just to cover their own expenses. For example, the Scottish Mortgage Investment Trust charges an expense ratio of just 0.36%.

This means that for every £1,000 that you have invested in the fund – you will pay just £3.60 per year. This is somewhat uncanny when you consider what goes on behind the scenes.

investment trust fund fees

For example, investment managers will have a team of experienced analysts that will research the markets around the clock. In turn, the fund will determine which financial instruments to buy and sell – and when to time the market.

You then have the underlying costs involved in placing trades with the respective clearinghouse, processing deposits, and withdrawals, and providing customer service. Most importantly – when you consider that the Scottish Mortgage Investment Trust is up over 338% in the prior five years – a fee of £3.60 for every £1,000 invested is extremely good value!

Performance

As we briefly noted earlier, while ETFs will look to track a specific marketplace, investment trusts seek to outperform it. In order to quantify whether or not the investment trust has achieved this purpose – the fund will base its returns (or losses) or a particular benchmark.

For example:

  • The City of London Investment Trust uses the FTSE All Share Index as its primary benchmark.
  • This particular index tracks 600 companies listed on the London Stock Exchange
  • In the five years prior to writing this guide, the FTSE All Share Index has grown by just 13%
  • Over the same period, the City of London Investment Trust has increased its share price by 28%
  • Put simply, the investment trust has outperformed its bench index by over 115%

As is evident from the above, had you opted to invest in the FTSE All Share Index via an ETF – you would have made significantly less than the City of London Investment Trust returned.

Diversification

Another major benefit of investing in the best trust funds UK is that you will be building a highly diversified portfolio. For example, the Monks Investment Trust gives you access to stock markets all over the world.

Not only does this include equities listed in the UK and the US, but Japan, South Africa, China, France, and other emerging markets. Attempting to invest in these non-UK markets yourself would not only be cumbersome, but expensive. This is because you would need to pay an individual share dealing fee on each investment – which would also likely include an international FX surcharge.

Scottish Mortgage best Investment Trust uk

But, by investing in a relevant trust – you can invest in a globalized portfolio of assets at the click of a button – often for less than 0.5% per year!

Compound Growth Trust

UK investors are also keen on trust funds because they allow you to benefit from compound growth. This is because on top of capital gains – most funds pay dividends every three months.

As soon as you receive your dividend payment, you can then reinvest the money straight back into the fund. This means that on each subsequent quarter – you are slowly but surely increasing your exposure to your chosen fund and thus – your capital can grow at a much faster rate.

Tax-Efficient Options

Other than a few rare cases, the vast majority of investment funds in the UK can be placed into your ISA or SIPP. This means that you can shield some, or all, of the capital gains and dividends tax that you would ordinarily need to settle with HMRC.

In other words, as long as you are not investing more than £20,000 in a single UK tax year – you should be able to keep all of your financial returns!

Best Investment Trusts Brokers

If you have decided which investment trust meets your financial goals – it’s then time to find a suitable brokerage site. Make sure your chosen provider is regulated by the FCA, offers competitive fees, and gives you plenty of trust funds to chose from.

To save you from having to research dozens of stock brokers yourself, below you will find a selection of the best investment trust UK platforms and best investment apps for 2021.

1. eToro – Invest in Trust Funds UK at 0% Commission and No Stamp Duty

eToro is now easily one of the most popular online brokers in the UK. Globally, the trading platform has grown its customer base to over 20 million investors and it is primed to become a public company later this year. The main attraction with eToro is that its platform is ideal for newbies and trading fees are super-low.

In fact, eToro is a 100% commission-free brokerage firm, meaning that you can buy shares and buy/sell investment trusts without paying any dealing fees. Not only this, but eToro waivers stamp duty tax. For those unaware, you ordinarily need to pay 0.5% when you invest in an asset that is listed on the London Stock Exchange – which includes most trust funds.

ETORO investment trusts

67% of retail investors lose money trading CFDs at this site

Additionally, and unlike other low-cost brokerage sites – eToro doesn’t charge any ongoing platform fees. In terms of supported assets, all of the best investment trust funds discussed on this page can be purchased at eToro. If you’re looking to diversify into other markets – eToro also offers more than 2,400 stocks and 250 ETFs from 17 different UK and international exchanges. You can also buy cryptocurrency and trade commodities, forex, and index. These assets are also offered commission-free.

If you have a desire to make passive investments, eToro offers a CopyPortfolio department. These are managed by the team at eToro and covers a variety of fund objectives. For example, there are portfolios that focus on established dividend stocks, cryptocurrencies, and renewable energy firms. You also have a Copy Trading feature, which allows you to ‘copy’ the trades of an experienced eToro investor. Both of these passive investment tools come at no extra charge – but minimums do apply.

eToro copy trading

While we are on the subject of account minimums, eToro requires just $50 (about £35) per investment trust trade. This is uncanny, as when you invest in a trust fund directly – the minimum often runs into the hundreds of pounds. When it comes to the safety of your capital – eToro  has a strong regulatory standing. It is authorized and regulated by the Financial Conduct Authority (FCA) and a member of the Financial Services Compensation Scheme (FSCS).

Pros:

  • Super user-friendly online trading platform
  • Buy stocks without paying any commission or share dealing charges
  • Trade CFDs in the form of stocks, indices, commodities, forex, and more
  • 2,400+ stocks listed on the UK and international markets
  • 150+ ETFs
  • Deposit funds with a debit/credit card, e-wallet, or UK bank account
  • Ability to copy the trades of other users
  • FCA and FSCS protections

Cons:

  • Not suitable for advanced traders that like to perform technical analysis
  • No ISAs or SIPPs

67% of retail investors lose money trading CFDs at this site

2. Capital.com – Best CFD Broker to Trade Investment Trust Funds

new capital.com logo

Although eToro is the best UK broker to invest in trust funds – some of you might be looking to place more advanced trading positions. If this is the case – CFD trading platform Capital.com is a great option. This is because the provider allows you to trade investment trusts with leverage.

For example, by trading the City Of London Investment Trust via a CFD instrument – leverage of up to 1:5 is offered. This means that a £100 stake would increase the size of your trade to £500. In addition to this, Capital.com also allows you to short-sell investment trusts. This would be an option to consider if you believe that the fund is overvalued and thus – you wish to profit from this.

trade investment trusts Capital.com

Much like eToro, Capital.com is a 100% commission-free broker that offers competitive spreads. For example, at the time of writing, the City Of London Investment Trust CFD market at Capital.com, is quoting a spread of just 84p per share. An additional plus-point of trading trust fund CFDs at Capital.com is that the minimum deposit stands at just £20. You can also practice trade via the Capital.com demo account facility.

On top of trust fund CFDs, this top-rated provider also offers thousands of other markets. This covers stocks, ETFs, indices, commodities, forex, and more. If you like the sound of Capital.com – you can open an account in minutes and instantly deposit funds with a UK debit/credit card or e-wallet. And of course – this CFD trading platform is regulated by the FCA – so your capital is kept in safe hands.

Pros:

  • Educational app for new traders
  • Commission-free trading
  • Tight spreads
  • Leverage offered
  • AI assistant identifies your weak points
  • Excellent charting and analysis interface
  • £20 minimum deposit

Cons:

  • Cannot build custom trading strategies
  • CFDs only

75.26% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.

How to Invest in Investment Trusts on eToro Tutorial

To conclude this guide on the Best Investment Trusts UK – we are now going to walk you through the process of entering the market via a top-rated FCA broker.

The steps below will show you how to invest in a UK trust fund with the commission-free platform eToro – which requires a minimum stake of just $50 per trade!

Step 1: Open an Account and Upload ID

First and foremost, you’ll need to open an account with eToro – which should take you no more than a few minutes. All you need to do is head over to the eToro website and click on the ‘Join Now’ button.

eToro sign up

67% of retail investors lose money trading CFDs at this site

You will then be asked to enter some personal information – such as the following:

  • First and Last Name
  • Home Address
  • Date of Birth
  • Mobile Number
  • Email Address
  • National Insurance Number
  • Username and Password

eToro also needs a copy of your passport or driver’s license so that it can verify your identity. For proof of address, you’ll also be asked for a recent copy of a utility bill or bank statement.

Note: You can upload the above documents at a later date if you are not making a deposit in excess of $2,250 (about £1,600).

Step 2: Add Funds to Your Investment Account

You can now proceed to make a deposit. eToro offers several UK payment methods – most of which are processed instantly. This includes debit/credit cards (MasterCard, Visa, Maestro), e-wallets (Paypal, Skrill, Neteller), and a traditional bank transfer.

As eToro utilizes US dollars on all accounts – you will be charged a small FX fee of 0.5% when you make a deposit. This is, however, countered by the 0.5% stamp duty tax that is waivered and the commission-free offering across all supported assets.

Step 3: Search for an Investment Trust

Assuming you opted for a debit/credit card or e-wallet deposit – your eToro account will now be funded. As such, you can proceed to search for your chosen investment trust.

invest in trust funds etoro

67% of retail investors lose money trading CFDs at this site

As you can see from the example above, we have entered ‘Scottish Mortgage Investment Trust’ into the search box. When the result pops up – we click it.

Step 4: Invest in a Trust Fund UK

On the next page, click on the ‘Trade’ button to bring up the order box for your chosen investment trust. Then, you need to enter the amount that you wish to invest. The minimum is just $50 – which is what we have entered into the ‘Amount’ box.

invest in trust funds etoro

To complete our investment – we click on the ‘Set Order’ button. And that’s it – you’ve just invested in a UK trust fund without paying any dealing fees or commissions! You can sell your investment at any time during standard market hours.

Best Investment Trusts UK – Conclusion

If you’re looking to outperform the wider financial markets in a 100% passive manner – investment trusts are well worth considering.

The good news is that you no longer need to invest hundreds of pounds into your chosen fund – as brokers like eToro require a minimum deposit of just $50 (about £35). Plus, not only is eToro a commission-free FCA broker – but it waivers the 0.5% stamp duty tax that you ordinarily need to pay on UK-listed trust funds.

If you’re looking to invest in the best performing investment trusts right now – the process at eToro takes less than 10 minutes from start to finish!

eToro – Invest in Trust Funds with 0% Commission and No Stamp Duty

67% of retail investor accounts lose money when trading CFDs with this provider.

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About Kane Pepi PRO INVESTOR

Kane Pepi is a British researcher and writer that specializes in finance, financial crime, and blockchain technology. Now based in Malta, Kane writes for a number of platforms in the online domain. In particular, Kane is skilled at explaining complex financial subjects in a user-friendly manner. Academically, Kane holds a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and he is currently engaged in a Doctorate Degree researching the money laundering threats of the blockchain economy. Kane is also behind peer-reviewed publications - which includes an in-depth study into the relationship between money laundering and UK bookmakers. You will also find Kane’s material at websites such as MoneyCheck, the Motley Fool, InsideBitcoins, Blockonomi, Learnbonds, and the Malta Association of Compliance Officers.

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