Why investing in small investment trusts can yield excellent returns

Smaller investment trusts can provide investors with access to high-growth microbusinesses that are frequently disregarded by larger institutions

We discuss why they are worthwhile.

While large investment trusts are generally better, some of the smallest investment trusts can be among the best.

We are accustomed to investing in megacap stocks like Microsoft and Nvidia, particularly in a time when the benefits of investing in the largest stocks are compounded by growing index investing.

Does this also hold true for investment trusts, though?

"Investment trusts come in all shapes and sizes, but it tends to be the largest trusts that attract most attention," stated Annabel Brodie-Smith, director of communications at the Association of Investment Companies (AIC), a trade association for investment trusts.

Brodie-Smith went on, "That's unfortunate because small can be beautiful in the investment trust industry." Some smaller, less well-known trusts could be great additions to investors' portfolios, but they don't always receive the interest they are due. The "

Some of the smallest investment trusts are among the best-performing. According to the AICs analysis, three of the top-performing trusts in 2025 have assets under £200 million.

Additionally, smaller investment trusts have certain advantages over their larger counterparts.

Why investment trusts that are smaller might be preferable.

Investment trusts, a kind of closed-ended fund, provide investors with a number of special benefits, not the least of which is the possibility of outperforming the index due to active management.

However, they are also the best way to reach smaller, less liquid businesses due to their structure. Private companies and small-cap stocks can occasionally offer the best long-term growth prospects, but because of their small size, they may be less liquid.

Open-ended fund managers may have to sell these long-term investments at unfavorable times due to redemptions. This issue does not exist with investment trusts.

Additionally, smaller investment trusts are even more appropriate for this use than larger trusts. Without that company making up a sizable portion of its portfolio, a large investment trust that purchases a micro-cap stock will soon become its largest shareholder.

On this front, smaller investment trusts may be more agile. Because of this, some have particular systems in place to guarantee that they stay small.

For instance, River UK Micro Cap (LON:RMMC) maintains its net asset value (NAV) at approximately £100 million through a share redemption mechanism. This is "in order to:," according to its most recent report.

Enable portfolio holdings to have a significant impact on the company's performance, which might otherwise be marginal in the context of a larger fund; guarantee that the company can consistently take advantage of the illiquidity risk premium inherent in micro-cap companies; and allow the company to fully utilize the underlying investment opportunity and deliver high and sustainable returns to shareholders, primarily in the form of capital gains. A similar system was put in place by MIGO Opportunities Trust (LON:MIGO) last year to make sure that its NAV wouldn't go over 150 million. Additionally, as an activist investor, it decreased the number of holdings in its portfolio, allowing it to have a more significant stake in each.

The top small-scale investment trusts.

These were the top three investment trusts with total assets under £200 million, according to the AIC's analysis.

Source: Morningstar, theaic . co . uk (to December 31, 25). refunds in the original currency.

CQS Natural Resources Growth and Income is one of the most attractive small investment trusts, according to Binary Capital's chief investment officer, Saftar Sarwar.

"Stellar performance in 2025 might not be a fleeting phenomenon," Sarwar stated. "It might reveal a more complex story. A strong, long-term tailwind is provided by the world's insatiable demand for vital minerals and energy, which is fueled by energy transitions, significant technological breakthroughs, and geopolitical realignments. A "