Investment Trusts Battle Back

The UK Investment Trust, now over 150 years old, has endured tough times yet always prevailed. Despite ongoing current challenges, it would be foolish to write the sector off.

During the London Stock Exchange’s Annual Investment Funds Conference, industry experts shared their insights on plans to revitalise the £200 billion¹ UK Investment Trust market.

Investment Trusts in the Firing Line

UK Investment Trusts have faced renewed challenges, mirroring stresses across the broader market. According to recent reports, the number of Investment Trusts in the UK has fallen from 337 to 275 over the last four years².

There are several reasons for this drop-off. Persistent discounts to Net Asset Value (NAV) are one driver. Although discounts have marginally improved on last year’s nadir, they remain elevated at around 13.8%, a far cry from 2021 when that figure stood at 2.6%³.

Share buybacks have helped narrow the discount window at a lot of trusts, but investor caution persists. Rather than putting their money to work in Investment Trusts, many are favouring passive funds such as Exchange Traded Funds (ETFs) and semi-liquid private market products, such as the EU’s European Long Term Investment Fund (ELTIF) or the UK’s Long Term Asset Fund (LTAF).

Performance has also been an issue for some Investment Trusts, many were wrongfooted by the UK equity market selloff in 2024. The industry is also underweight in North America, where valuations, particularly in technology assets, are currently soaring.

“In addition to the difficult macro conditions, Investment Trusts are under regulatory pressure too. Until the start of this year, Investment Trusts were subject to the PRIIPs cost disclosure requirements.  This painted an inaccurate picture of the relative cost of Investment Trusts compared to other vehicles like open ended funds.  The Financial Conduct Authority’s (FCA) new cost disclosure proposals in the Consumer Composite Investment (CCI) regime were supposed to change that, but changes are still being worked through,” said Simon Gordon, Senior Director, Fund & Corporate Services, speaking at the London Stock Exchange Annual Investment Funds Conference 2025.

Among one of the FCA’s more contentious proposals are that Trusts aggregate their fees into a single, headline figure. While this is a perfectly straightforward exercise for open-ended funds, as listed companies, Investment Trusts are subject to much tougher reporting and governance requirements. As a result, their costs may appear higher, which might be off-putting for price sensitive investors.

However, reports have emerged suggesting the FCA may offer Investment Trusts greater flexibility in cost disclosures due to their unique characteristics⁴.

Regaining momentum through education

Investment Trusts are going through a rough patch, however, they will have to adapt if they are to thrive moving forward.

“Investment Trusts are a central part of the UK and global ecosystem, but this cannot be taken for granted. As with many sectors in capital markets, Investment Trusts will need to evolve if they are to position themselves to attract new capital and continue providing positive outcomes for investors. Recent campaigns against Investment Trusts by activist investors, such as hedge fund Saba Capital, have also sharpened the industry’s minds on this matter,” commented Gordon.

If Investment Trusts are to win mandates, they need to do a much better job of articulating their value proposition to retail investors, at least relative to other asset classes.

“A key message is that Trusts give regular investors access to assets, such as defence, technology, and green infrastructure, areas otherwise difficult to access for individuals.”

“Although more private market managers are beginning to offer retailised or semi-liquid products, such as ELTIFs and LTAFs, Investment Trusts already deliver similar exposures, usually at lower cost and with less cash performance drag,” highlighted Gordon.

As one asset manager drily observed, had the UK LTAF existed prior to the Investment Trust, then someone would have just invented the Investment Trust to fix all the issues with the LTAF.

Investment Trusts also need to bring the fight to passives, an asset class which is benefiting from record inflows, as investors seek out low-cost returns.

“At the end of the day, a passive fund is inexpensive because it is simply tracking an index, it’s in the name. By contrast, Investment Trusts offer active management, which is crucial for allocations to real assets and alternatives.”

“While ETFs can track an index of alternatives, they rarely own the underlying assets themselves. Trusts need to emphasise this point,” said Gordon.

He continued: “The Investment Trust is fundamentally a fantastic investment vehicle. It offers excellent, long-term returns and helps allocate capital into assets in need of permanent capital.

“If Investment Trusts are to get on the front foot with their capital raising again and compete with private markets and passive funds, they will need to double down on their investor education and marketing campaigns.”

It is not just investors who managers should be reaching out to though.

“Investment Trusts should also be proactively engaging with regulators and explaining in no uncertain terms why rules such as the CCI’s fee disclosure obligations are so problematic for the industry,” said Gordon.

M&A as an enabler

Amid the challenging performance conditions, Investment Trusts are looking to consolidate and benefit from the enhancements that brings.

According to the Association of Investment Companies (AIC), there were 10 Investment Trust mergers in 2024, double the number from 2021⁵. As of H1 2025, there have so far been two mergers, the AIC added⁶.

High-profile transactions last year included Tritax Big Box REIT’s merger with UK Commercial Property REIT, creating a company with assets of £6.1 billion, followed by the merger between Alliance Trust and Witan Investment Trust, bringing together combined assets of £5.7 billion⁷.

Through tactical M&A, Investment Trusts can obtain economies of scale, diversification and access to new investors.

“M&A is a natural function of the market, and it is accelerating the move by smaller Investment Trusts towards scale. Another by-product of mergers is that it allows for non-core assets to be sold off. If those assets are offloaded at the valuation set by the manager, then that helps to validate the fund’s NAV, thereby closing the discount,” said Gordon.

Onwards and upwards for Trusts

Investment Trusts have suffered a tough time lately along with a lot of financial instruments, but the sector is far from a lost cause.

By providing better education to investors and embracing strategic M&A, the Investment Trust industry has every chance of not just surviving but flourishing.

To find out more about JTC’s listed services, visit our dedicated webpage.

¹Cazenove Capital – April 30, 2025 – Where next for Investment Trusts?
²Financial Times- June 27, 2025 – Number of Investment Trusts falls by a fifth
³Financial Times- June 27, 2025 – Number of Investment Trusts falls by a fifth
⁴Investment Week – October 9, 2025 – FCA –‘We will make allowances for investment trusts’ in CCI framework
⁵Association for Investment Companies – January 6, 2025 – Investment Trust Review 2024
⁶Association for Investment Companies – July 7, 2025 – Investment Trust Review H1 2025
⁷Association for Investment Companies – January 6, 2025 – Investment Trust Review 2024