Investment trusts' benefits

A real-world example illustrates the advantages of using investment trusts to accumulate wealth through market cycles

The best way to create long-term wealth is through investment trusts. Investment manager John Moore recently shared a real-world example on LinkedIn that effectively illustrates this point.

When the portfolio was first established in 1999, it contained Gartmore Shared Junior Zero Div (7.3 percent by value), English and Scottish Investors (18.4 percent), Finsbury Trust (18.2 percent), Law Debenture (19.8 percent), Majedie Investments (17.7 percent), and Scottish Mortgage (18.5 percent). You'll see that some of these have changed considerably, while others are no longer in existence.

Several changes have been made to English & Scottish Investors. In 2002, it changed its name to Gartmore Global Trust, and in 2011, it became Henderson Global Trust. In 2016, it was combined with Henderson International Income Trust, and in 2025, it was combined with JPMorgan Global Growth & Income (LSE: JGGI).

It is difficult to track investment trust returns back over several decades and mergers. However, I calculate that an investment of 1 in 1999 would now be worth 7.42 in JGGI shares, representing an annual return of 7.8 percent, using Google's Gemini AI tool. The Gartmore Shared Junior Zero Dividend trust, established in 1993, had a less than ideal end. In 1993, Gartmore Value gave rise to this split-capital trust.

In the late 1990s, complex split-capital investment trusts gained popularity. In the end, many of them held the shares of other splits. When the tech bubble burst, this financial engineering was disastrous because the industry collapsed under a mountain of debt and cross-shareholdings. The majority of split buildings had either collapsed or been wound up by 2003. In 2004, the then-regulator, the Financial Services Authority, intervened and established a compensation fund worth 194 million dollars.

With a few manager and strategy changes, the remainder of the portfolio is still in place. Since Lindsell Train, the company he co-founded, was appointed portfolio manager in 2000, Nick Train has been in charge of Finsbury Trust, which is now known as Finsbury Growth & Income (LSE: FGT). Despite recent poor performance, the shares have returned 677 percent since then.

The reasons investment trusts are worth considering.

Majedie Investments (LSE: MAJE) was founded by the Barlow family in 1910 as Majedie (Johore) Rubber Estates, a plantation company in Malaysia. The trust supported the establishment of Majedie Asset Management in 2002, which managed its investments until being purchased by Liontrust in 2022. Currently, it is a multi-manager investment trust that is managed by Marylebone Partners, which is a division of Brown Advisory. According to Gemini, between 1999 and 2026, an investment would have yielded an annual return of 4.1%.

Many BFIA readers will be familiar with Scottish Mortgage (LSE: SMT) and Law Debenture (LSE: LWDB). Similar to Majedie, Scottish Mortgage started out in 1909 financing rubber plantations in Southeast Asia but soon expanded its investments. It currently owns a high-confidence global portfolio of growth stocks, both public and private. According to my calculations, since 1999, it has returned 16.7%. A unique blend of a professional services company and a UK equity portfolio is Law Debenture. Its yearly return has been 11.8%, according to my estimation.

Assuming no rebalancing and dividend reinvestment, this portfolio has likely returned between 11% and 12% annually since 1999, while the MSCI AC World index has returned 8.2%. The losers are more than offset by the performance of the biggest winners. Investment trusts can make investments and weather market cycles that may be fatal for open-ended funds by using their fixed capital.

For this reason, the BFIA portfolio, which was established in 2012, is built around investment trusts. A global, set-and-forget portfolio has been the objective despite a few changes over the years. In addition to AVI Global (LSE: AVI), Caledonia (LSE: CLDN), and Personal Assets (LSE: PNL), it currently holds JGGI, LWDB, SMT, and FGT.