When ISA season comes around many a fund management house will be paying testament to the tax wrapper’s advantages. At Henderson Global Investors we view it as one of the most efficient ways to invest for your future and if managed well the £15,240 the government allows you for a Stocks & Shares ISA in a single tax year could well mean the making of significant future financial returns.


Deciding what to put in it is difficult though and we do not deny the sea of choice out there. Because of this, Henderson brings you one (largely unknown) corner of the investment market that we think may be perfect for your ISA: investment trusts.

Investment trusts are closed-ended investment companies; they have a fixed amount of money to invest for their particular mandate i.e. growth, income, or a mix of both; from a wide range of geographical or sector specialisations.

Investors wishing to buy into them buy shares in the investment trust company, as you would BP or Barclays. This differs from open-ended funds; if they experience sudden and significant redemptions the fund managers may find themselves selling positions on the basis of liquidity rather than preference, which may less profitable. The effect is to constrain, both in terms of liquidity and the time horizon for the investments.

‘the £15,240 the government allows you for a Stocks & Shares ISA in a single tax year could well mean the making of significant future financial returns’

Investment trust managers do not need to concern themselves with maintaining a level of liquidity to fund redemptions; the number of shares in issue stays put, allowing them a longer-term investment view where more opportunities may exist as well as the option to buy more esoteric or illiquid assets. Because ISAs are about investing for the long-term we think this makes investment trusts a sensible choice in your ISA.

There are further advantages.

Usually, the decision surrounding where to invest your money is based on two broad outcomes: do you want to grow your capital or do you wish to preserve it and gain an income.

Investments in ISAs in general do not attract any income tax on dividends paid-out by the investment vehicle. Investment trusts offer a further advantage: the manager is able to save up to 15% of the pot of income received from the underlying assets, whereas managers in open-ended funds do not have this privilege.

AbstractBecause investment trust managers can retain earnings, usually during buoyant economic periods, when less favourable market conditions arise they are able to dip into their reserve account and keep-up payments. It makes for a smoother income flow and, as such, can make investment trust payments less volatile.

The City of London Investment Trust, for example, has achieved 47 years of consistently rising dividends, although investors should note past performance is not a guide to future performance.

For capital growth seekers, investments in ISAs also avoid Capital Gains Tax (CGT). Investment trusts again offer a further advantage to aid capital growth: they have the option to borrow money with the aim of enhancing returns over and above its costs.

This feature – known as gearing – enables the manager to purchase a greater number of stocks during bullish market periods, such as the one we are now, utilising a potentially greater number of opportunities and adding to any capital gains made. It’s a double edged sword though: it may also serve to enhance loses if a manager does not see an economic down-turn coming.


‘The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested’

For those with the cash, £15,240 is certainly a significant sum to consider investing. Monthly payment options, however, mean you need not necessarily invest it all at once, removing the dilemma many face: “When is the best time to deal?” Some providers allow as little as £20 per month. And the efficiency of the wrapper means its exclusion from tax returns, so it requires little thought at the end of the tax year.

If you have an investment strategy, adding investment trusts to your Stocks & Shares ISA should be a part of it.

The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.


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Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.


Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.

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