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How one group of advisers uses investment trusts

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15 June 2015

Nick Britton, Head of Training at AIC.

While the Retail Distribution Review (RDR) has encouraged more advisers to look at investment trusts, it’s good to be reminded that a few have been using them for decades.

Based in London’s Chancery Lane, Master Adviser recently updated us on what the firm calls its ‘core investment trust portfolio’. This is a select group of half a dozen investment trusts that it commonly recommends to wealthier clients who need income and can accept some risk to their capital.

The firm’s investment analyst Jim Harrison explains that if £20,000 had been invested in each of these six investment trusts since 31 December 1999, the income received from this £120,000 portfolio would have risen every single year, starting at £3,730 in 2000 and finishing at £8,652 in 2014.

Jim adds that the one key figure that investors are most worried about is the growth in their income. Over the period, it works out as an average 6.23 per cent a year, more than double the rate of inflation over that period which was 2.47 per cent.

These numbers chime in with research we’ve done at the AIC on the UK Equity Income sector, but Master Adviser has achieved even better income growth through successful fund selection and by adding a couple of global equity investment trusts into the mix.

But what’s happened to the capital in the meantime? Well, the portfolio is designed for those who can accept some capital loss but the good news is that the capital had nearly doubled by the end of 2014 from its starting value at the turn of the millennium, even after all the income was taken. Admittedly, this was after some ups and downs: for example, the market downturn associated with the dotcom crash reduced the capital from £120,000 to £91,000 by the end of 2002. But by the end of last year, it stood at £230,000.

Now as Jim rightly points out, none of this is a reliable indicator of future performance. But we’d heartily support his conclusion: ‘for investors seeking long-term income then dividend income from investment trusts must be a prime consideration’.

By now you probably want to know what the six investment trusts in Master Adviser’s core portfolio are. View the research note.

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