As we approach the end of one tax year and the beginning of the next, the consumer financial media gets into its usual ISA frenzy promoting the benefits of these tax-advantaged vehicles. Rightly so. ISAs remain, so far anyway (pace Ms. Reeves) one of the best ways of building up a significant tax-free pot for future needs.

The Association of Investment Companies (AIC) recently came out with some telling research showing that full investment of ISA allowances from 1999 to 2024 (a total of some £326,560) in the top 50 investment trusts would have produced a tax-free sum of over £1 million, or over £2 million if invested in any of the top four investment trusts, by 31st January 2025. Their research assumes automatic investment of the full allowance at the earliest opportunity in each tax year (i.e. on 6th April) and reinvestment of all dividends, illustrating what Einstein called the Eighth Wonder of the World: the power of compounding.

It is gratifying to note how many of these long-term performers feature in CH client portfolios. Inevitably, technology is a strong theme among the top four with Scottish Mortgage returning £2,335,775 and JP Morgan American £1,902,265. Both of these have figured in the overseas allocations of CH moderate and higher-risk portfolios targeting capital growth for many years now. (We first started including Scottish Mortgage in 2003).

Notable others from the list that feature in our portfolios include Fidelity European Trust (£1,322,452), Mid Wynd International (£1,301,629), Alliance Witan (£1,208,458), Fidelity Special Values (£1,198,034), Monks Investment Trust (£1,165,093), Henderson European (£1,146,372) and Caledonia Investments (£1,010,065).

With some clients recently querying the inclusion of smaller companies funds in their portfolios, it is good to see that 14 of the top performers are from this latterly beaten-up sector, including the top-performing European fund, Montanaro European Smaller Companies, returning £1,302,101.

If ever it was needed, it is encouraging to see the AIC reinforcing the message that whatever the market conditions – and we have had our fair share of crises and crashes over the past two decades or so - regular subscription of ISA allowances plus patient investment can produce spectacular returns which can then be converted to generate steady tax-free income to supplement pensions and other sources. The added bonus that they don’t mention, perhaps disingenuously, is that many of these investment trusts currently trade at significant discounts to their net asset values, partly the result of a distortive and misleading regulatory cost disclosure regime which they have so far failed to persuade the FCA to reverse, although a resolution is hoped for soon.

For new investors, however, investment trusts offer some wondrous opportunities and ISAs represent one of the best places in which to nurture them for long-term, tax-free returns.
 

Sources: theaic.co.uk/Morningstar

Any views or opinions expressed in this piece are those of the author and not necessarily representative of Church House.

Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.