Every sensible portfolio should ideally consist of a bedrock of investments which provide diversified access to steady growth, capital protection and income.

This is relevant not just during challenging periods but most of the time. Just as solid foundations are essential for a safe building,
they are also needed for an investment portfolio alongside patience.

This article highlights five investment trusts which individually possess different attributes and approaches but collectively provide broad access to growth, protection and income.

Before we discuss each trust, it’s worth considering two rules of investing often cited by highly respected investor Warren Buffett.
First, don’t lose money and second, don’t forget rule number one.

Capital protection has an important role to    play in a balanced portfolio and keeps investors in the game so they can prosper during the boom times.

Protecting capital through the hard times provides a significant head start during the upswings. For example, let’s take two investors called John and Alice.

Stock markets go through a rough time and the value of John’s portfolio falls by a third. He holds onto everything in the portfolio but now he needs the overall value to increase by 50% to get back to where he started before the stock market wobble.

Compare that with Alice whose portfolio only loses a tenth of its value during the same bear market thanks to her more defensive positioning. Alice needs her portfolio to gain only 11% to get back to the point before the bear market conditions happened.

CAPITAL GEARING TRUST (CGT) £47.23

Market cap: £1.2 billion

Dividend yield: 1%

Discount to net asset value: 2%

This trust has been managed by Peter Spiller since 1982 with co-managers Alastair Lang joining in 2011 and Chris Clothier joining in 2015.

The trust holds a broad range of traditional assets and aims to preserve capital and to grow shareholders’ real wealth over time. It has a good track record of preserving capital through bad times and has beaten inflation over the medium to longer term.

In 1982 the trust’s share price was 21.25p which means anyone lucky enough or far sighted enough to have invested £10,000 back then would now be sitting on an investment today worth £2.3 million. This is equivalent to a compound annual growth rate of 15% a year.

The early years of the trust were characterised by high gearing which boosted returns and is the reason behind the name of the trust.

From the turn of the century the strategy has migrated towards a defensive approach with a focus on capital preservation and consistency of returns.

Since 2000 the maximum drawdown (peak to trough percentage drop) has been 9% compared with 41% for the MSCI UK index, demonstrating lower variability.

The trust does not use derivatives and it invests in liquid instruments across traditional equities, bonds, cash, property and gold.

The portfolio is currently defensively positioned with two thirds of assets in fixed income. Index linked government bonds are 44% of assets with another 10% on conventional government bonds.

Corporate bonds and preference shares (hybrid equity with limited voting rights that rank ahead of ordinary shareholders) represent 13% of assets. Funds and equities make up 30% of assets with cash at 2% and gold 1%.

The trust has an ongoing charge of 0.9% a year, slightly lower than other capital preservation trusts.

ECOFIN GLOBAL UTILITIES AND INFRASTRUCTURE (EGL) 202.5p

Market Cap: £232 million

Dividend yield: 3.9%

Discount to net asset value: 1.8%

Keeping pace with inflation to protect the real value of wealth and savings is not easy in the current environment but one asset class which has historically done well during such times is infrastructure.

Ecofin Global Utilities and Infrastructure invests in utilities and infrastructure companies in developed markets and provides investors with access to a mix of regulated and growth-oriented opportunities.

The manager of the trust was founded in 1991 with the objective to deliver strong risk-adjusted returns as a specialist in global infrastructure and sustainability. The firm has $2 billion in assets under management.

Ecofin’s investment trust aims to provide a high, secure dividend yield and to realise long-term capital growth while preserving capital. It has a yield of 3.9%.

Key characteristics of the portfolio include predictable cash flows based on long-term contracts, inflation protection and secure earnings.

Over the last five years the trust has delivered a share price total return of 138% and increased net asset value by 95.4%, outperforming the 41.8% return of the S&P Infrastructure index and the 58.1% return of the MSCI Utilities index.

Since inception in 2016 the shares have a compound annualised return of 15.5% a year while net asset value has increased by 10.8%
a year.

Ecofin highlights research from Goldman Sachs which shows real assets have consistently outperformed in periods of elevated inflation over the past century.

The manager believes listed infrastructure trades at a deep discount to privately funded assets. A key catalyst to narrow the discount resides in the record levels of private equity money which is increasingly finding its way into public markets.

For example, in the past 18 months there have been three takeover bids for listed infrastructure assets in Australia: Sydney Airport, power networks owners Spark Infrastructure and energy services group AusNet.

Top holdings for the Ecofin trust include US infrastructure capital provider NextEra Energy (NEE:NYSE), UK energy company SSE (SEE) and German energy company RWE (RWE:XETRA). It has an ongoing charge of 1.35% a year.

F&C INVESTMENT TRUST (FCIT) 899p

Market Cap: £4.7 billion

Dividend yield: 1.5%

Discount to net asset value: 2.4%

F&C Investment Trust (FCIT) is the oldest investment trust in the world, founded in 1868 at the same time helium was discovered.

The trust aims to generate long-term capital growth and income by investing primarily in listed global shares and funds. It also invests in well-managed, high-performing private equity funds. The portfolio is diversified across over 300 holdings.

F&C has an unbroken record of increasing the dividend for the last 52 years. The trust has been a bastion of stability in terms of stewardship with 11 managers over the last 150 years and only three since 1969.

It has outperformed the FTSE All-World total return index over the last three and five years, delivering growth in net asset value of 36.4% and 53.2% respectively, compared with 30.5% and 50.8% for the index.

The portfolio is defensively positioned following a rejig in early 2022 with a reduced exposure to US growth shares in favour of income and value investments. Gearing was also reduced to a conservative 3.6%.

On a look-through basis including private equity holdings the fund is weighted 55.5% to the US, 11.6% to Europe, 7.8% to emerging markets, 6.9% to Japan, 9.8% to the UK, 2.6% to developed Pacific, and 5.8% cash and equivalents.

In terms of sectors, technology is the largest representing 19.6% of assets with financials at 16.2% and healthcare at 14.9%, collectively making up half of the portfolio.

Top individual share holdings include Microsoft (MSFT:NASDAQ), Apple (APPL:NASDAQ), UnitedHealth (UNH:NASDAQ), Alphabet (GOOG:NASDAQ) and Amazon (AMZN:NASDAQ) which collectively represent 8.5% of assets.

The trust has an ongoing charge of 0.54% a year and a dividend yield of 1.5%. 

POLAR CAPITAL GLOBAL HEALTHCARE TRUST (PCGH) 314p

Market cap: £381 million

Dividend yield: 0.7%

Discount to net asset value: 6.7%

Healthcare is another long-term secular growth theme with sustainable drivers. Historically, spending on healthcare has increased above the rate of inflation, demonstrating good pricing power and defensiveness.

Polar Capital Global Healthcare provides diversified access to healthcare themes. Over the last one, three and five years its shares have outperformed the Morningstar Equity Healthcare sector, delivering compound annualised returns of 16.6%, 16.3% and 12.2% respectively.

Although the portfolio is comprised of a single pool of investments, operationally the managers maintain a growth portfolio and an innovation portfolio.

Innovation companies are defined by the manager as smaller and mid-cap stocks driving disruptive change and transforming the management and delivery of healthcare. The innovation portfolio may consist of unquoted stocks, but exposure is limited to 5% of gross assets. Once an innovation company’s market value moves north of $5 billion it sits under the growth portfolio segment.

The healthcare sector has seen a rotation towards large-cap names as the market shifted away from smaller companies and speculative parts of the market. Manager James Douglas believes large-cap names will continue to be beneficiaries in a stagflation environment.

The portfolio consists of 43 holdings dominated by larger companies such as Johnson & Johnson (JNJ:NYSE), Abbvie (ABBV:NASDAQ), Eli Lilly (LLY:NASDAQ) and AstraZeneca (AZN). The trust has an ongoing charge of 0.92% a year.

SCOTTISH AMERICAN INVESTMENT TRUST (SAIN) 498p

Market Cap: £880 million

Dividend yield: 2.8%

Discount to net asset value: 3.4%

Income is important for many investors and in today’s high inflation environment focusing on sustainable dividends which can grow at least in line with inflation is more important than ever.

Scottish American Investment Trust (also known as ‘SAINTS’) was founded in 1873 to seek higher income outside the UK and has grown its dividend for the past 48 consecutive years. The last time the dividend was cut was 1938, before the Second World War.

Part of the Baillie Gifford stable of trusts, manager James Dow says the trust’s aim is to ‘provide our investors with peace of mind’.

The strategy is to focus on companies which are best positioned to deliver consistent and growing dividends rather than those with the highest yields.

The trust aims to be a core holding for investors looking for income and has an objective to grow the dividend at a faster rate than inflation over rolling five-year holding periods, which it has comfortably achieved.

Since 2014 the trust has grown its dividend by 2.9% ahead of UK consumer price inflation, more than maintaining investors’ purchasing power. The current dividend yield is 2.8%.

The trust has grown its net asset value by 68% and 195% over the last five and 10 years respectively, comfortably outperforming the            FTSE All-World index.

Top holdings include Danish diabetes specialist Novo Nordisk (NVO:NYSE), US air conditioning, heating and refrigeration distributor Watsco (WSO:NYSE) and wholesale industrial and construction supplies distributor Fastenal (FAST:NASDAQ).

Around 45% of assets are invested in the Americas, 36% in Greater Europe and 19% in Greater Asia. The trust has an ongoing charge          of 0.59%.

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