Adam Norris, Co-Portfolio Manager of CT Global Managed Portfolio Trust, says that to match to long term time horizons of growing wealth, investors should look no further than investment companies.
It’s a triumph of humanity that people are living longer and healthier lives, with the UK life expectancy now reaching 81, up from 75 in the past few decades.
Moreover, the baby boomer generation is now retiring (if not retired already) as the wealthiest generation on record, propelled by property prices and strong stock markets returns.
As a result of the two combined, the baby boomer generation is set to pass down £5.5tn of accumulated wealth over the next two decades.
With ISA annual allowance only a fraction of the average inheritance pot and capital gains tax thresholds at multi-year lows, investors face a dilemma regarding their financial planning.
Thinking long term, acting long term
To match to long term time horizons of growing wealth, investors should look no further than investment companies.
The world’s oldest, F&C Investment Trust, was founded over 150 years ago in 1868, underlining how Investment Trust longevity can be beneficial for shareholders.
Investments Trusts are ‘closed ended’ vehicles, meaning whilst investors buy or sell the shares of the trust, the underlying assets are not impeded by client inflows and outflows – somewhat different to that of an open-ended fund.
When individuals are considering long term savings, such as to grow their pension pot, using a vehicle which matches that time horizon could be beneficial to client outcomes.
According to a recent study by the Association of Investment Companies, the majority of investment trusts outperformed their open-ended sister funds over one, three, five and ten years.
In fact, over a ten-year period, some three quarters of investment trusts outperformed funds managed by the same manager. [1]
There are a number of reasons behind this phenomenon. Firstly, due to the ‘closed ended’ structure outlined above, an investment company manager can perhaps hold small, less easily tradable names, but perhaps higher returning over the long term.
Within an Investment Company, they can do this with the knowledge they won’t be forced to sell the position to raise cash to fund outflows, often coinciding with times of market stress.
Secondly, investment companies can use bank borrowing, called gearing, to invest in higher returning assets, such as equities.
With many major equity markets returning 10% plus annualised over the past five years, it has been beneficial to use gearing to enhance returns for shareholders, although noting it can magnify losses if markets fall.
Thirdly, Investment Company managers are able to construct the portfolio to reflect their best ideas, in the size and shape they believe will deliver the best returns.
Often they are not bound by the same regulatory diversification rules as open-ended UCITS funds which are restricted to a 10% maximum position size in a single issuer.
Whilst this limit may on the surface seem a reasonable risk control, Emerging Market equity managers are now structurally underweighting the market’s largest single holding – Taiwanese Semiconductor Manufacturing Company –a crucial player in the global artificial intelligence supply chain.
Finally, an Investment Company’s best kept secret is its ability to smooth and top up dividend payments to its shareholders, through their deep pools of ‘revenue reserves”.
These reserves not only provide predictability to shareholders, but also allow the investment managers to take a more flexible investment approach, and not needing to target high yielding stocks but with lower total returns, in order to achieve an attractive dividend.
Flexibility to grow now, draw later
The CT Global Managed Portfolio Trust – Growth portfolio (ticker: CMPG) offers investors a one-stop-shop for investors looking to grow their capital using Investment Companies.
With the long-term benefits outlined above, investors can use Growth to access best-in-class Investment Companies, such as Global Technology Trusts, Private Equity and burgeoning Emerging Markets.
However, for those investors perhaps looking for income, the CT Global Managed Portfolio Trust – Income portfolio (ticker: CMPI) aims to deliver an attractive level of income, growing that income over time.
Around two-thirds of the portfolio is allocated to companies which are invested in equities, with the remainder in selected credit and alternative income companies, including infrastructure, property and renewable energy.
The current yield is c.6% and dividends are paid quarterly.
Whilst the two portfolios are managed independently, the overall trust’s clever structure links the two portfolios in a number of ways.
Any income earned in the Growth portfolio (as even some technology stocks pay dividends!) is swapped over to the Income portfolio, boosting dividends for Income shareholders.
And vice versa, capital is returned to Growth portfolio, boosting capital available for Growth shareholders. A win, win.
And finally, once a year, investors can elect to convert their holding of the Growth Portfolio to the Income Portfolio (or vice versa).
Under current tax rules, this conversion is not treated as a disposal for Capital Gains Tax purposes, particularly useful for those investors who hold the trust outside of a tax wrapper.
This means that Growth shareholders can grow their capital, convert their shares and then draw an income when ready, such as approaching retirement. Grow now, draw later.
[1] https://theaic.turtl.co/story/compass-may-2026/page/4
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