Five under-the-radar investment trusts that can deliver growth and income

Growth and income can work together and provide the key to handsome long-term returns, you just need to know where to look, says Ryan Lightfoot-Aminoff, investment trust research analyst at Kepler Partners. 

Were you to list the main reasons why people invest in stock markets, growing savings and generating income are likely the two most common answers.

However, these outcomes are not mutually exclusive, and, in fact, a growing number of investment trusts aim to provide shareholders with both good growth and attractive income.

The flexibility of the investment trust structure has helped deliver on these dual goals. Boards can hold back small amounts of income generated by portfolios in good years to top up dividends when conditions are more challenging.

In addition, many have adopted what’s known as an enhanced dividend policy, which uses a small amount of investment profits to help pay a predetermined income.

As such, many investment trusts now boast attractive incomes and the potential for strong capital returns, including from asset classes not typically renowned for income.

Growth and income can work together and provide the key to handsome long-term returns

How to invest for income in unexpected places

One example from a more unusual asset class is International Biotechnology Trust (IBT). The biotech industry is primarily considered for growth, as it contains companies at the forefront of medical advancements, including those developing new drugs and treatments. 

These companies often produce one of two outcomes; if a firm passes trials, share prices usually rocket due to the future gains the treatment is likely to generate, but should they fail, the share price usually falls substantially, even potentially to zero.

This binary return profile means biotech is considered one of the highest-risk asset classes, and as cash flows are unpredictable, dividends are uncommon.

Ailsa Craig of International Biotechnology Trust, which targets growth but pays a dividend too

However, the managers of IBT, Ailsa Craig and Marek Poszepczynski, have successfully navigated these issues through a sophisticated, risk-conscious approach which has identified many winners, while aiming to position the trust away from weaker areas of the market. 

This has led to excellent returns, with the trust’s NAV increasing by approximately 86 per cent over the past five years, which compares to around 41 per cent for the trust’s benchmark, the Nasdaq Biotechnology Index. 

As well as generating impressive capital returns, the trust uses these gains to pay a predetermined level of income, equal to 4 per cent of NAV on the last working day of its financial year, paid in two equal instalments in the following financial year.

As such, shareholders of IBT not only get access to the huge growth potential of biotech, but also an income stream generated from a very different set of stocks than would normally feature in an income portfolio, offering considerable diversification benefits.

The small companies with big potential... and dividends 

Another example is Montanaro UK Smaller Companies (MTU) which offers an impressive yield of around 6 per cent despite being invested in a growth-focused area at the lower end of the UK market-cap spectrum. 

Smaller companies are usually less mature than their large-cap peers, meaning additional cash is often reinvested to support growth. 

As such, dividend prospects from investing in small caps have historically been quite limited. 

However, this narrative has shifted in the near-term through resilient underlying performance from many UK smaller companies and low valuations due to weak sentiment. 

This has meant the income small caps are generating is currently elevated versus historical averages. 

In addition, MTU uses an enhanced dividend strategy to top up the income it generates, meaning investors can not only capture knock-down valuations in UK small caps and potentially benefit from a long-overdue recovery, but also generate a very attractive income along the way.

It's a kind of magic: Publisher Bloomsbury is one of Montanaro UK Smaller Companies' holdings and pays out a dividend

How to invest in the US... and pick up income

The US is often one of the first markets investors turn to when looking for growth, having led the way globally for much of the past two decades. However, the country has less of a dividend culture. 

Firms prefer to return additional cash to shareholders through buybacks rather than income. 

Fortunately, the approach of BlackRock American Income (BRAI) has several factors that help redress this. Firstly, managers Travis Cooke and Muzo Kayacan target value stocks, typically those trading at depressed valuations and therefore offering higher yields. 

This approach, adopted in April 2025, has already led to returns beating both the S&P 500 Index and the trust’s own benchmark. In addition, the trust has an enhanced dividend policy that pays 1.5 per cent of NAV to investors once per quarter, meaning an annualised yield of around 6 per cent, although this figure will vary as the trust’s value moves throughout the year. 

As such, BRAI offers exposure to the growth potential of the wider US economy whilst diversifying from the dominant tech sector, while investors can also generate significant income due to the trust’s differentiated approach.

How to fit an investment trust into your portfolio 

As these examples show, the investment trust structure enables several ways of providing investors with both growth potential and income, especially from asset classes not typically known for their income-paying characteristics. 

This could help investors add both growth and income to portfolios, while also diversifying away from more traditional income-paying assets. 

Many of these trusts are invested in areas with different performance and risk characteristics, meaning they will react differently in various market conditions. 

As such, including them as part of a wider portfolio could support long-term returns and provide investors with both excellent growth and a high, resilient income.

The trust packing a year's dividends in reserve 

Not all investment trusts offering both growth potential and attractive incomes have resorted to using an enhanced dividend approach. 

Murray International (MYI), for example, has used an investment trust’s ability to hold back income in more prosperous times to build an impressive reserve, equivalent to over a year’s dividends, which can be used should the trust experience weaker income generation. 

This means MYI is well placed to build on its 21 consecutive years of dividend growth, and with the current yield of around 3.6 per cent, it is more than double wider global markets (as measured by the MSCI World Index). 

Despite this better income picture and impressive dividend growth track record, managers Martin Connaghan and Samantha Fitzpatrick have also generated impressive capital growth, with a NAV total return of 90 per cent over five years, above the global markets 74 per cent. 

As such, we believe the trust is well placed to continue to deliver both growth and income for investors going forward.

How to back unlisted companies and get income 

One further example that demonstrates the flexibility of the investment trust structure is CT Private Equity (CTPE). 

As the name suggests, the trust invests in private companies before they join listed, public markets, with a focus on lower-mid market European companies. 

The trust is likely to have a very different return profile to most other trusts, and even to private equity peers which tend to focus on US-based companies. 

Furthermore, as these companies are private, difficult to trade and usually in the growth phase of their life cycle, income opportunities are limited. 

However, CTPE has been paying a dividend for many years and has followed a set formula since 2012. This pays out the equivalent of 4 per cent of NAV per annum, although the amount will be tweaked to ensure the dividend does not fall from year to year. 

This means the trust now has 14 consecutive years of dividend growth, the longest amongst all private equity trusts, as well as yielding over 6 per cent despite the asset class not being well-known for income.