The past five years have been unusually rewarding for UK equity investors who backed investment trusts capable of combining capital growth with a rising dividend. While UK equity income as an asset class was largely ignored between 2016 and 2022, the subsequent recovery in banks, defence, industrials and domestic cyclicals has created exceptional returns for several actively managed trusts.
UK investors have also more recently been considering their exposure to US equity markets. A three-year surge of popular indices like the S&P 500, Nasdaq 100 and Nasdaq Composite has raised valuation concerns. The UK’s relative discount to US markets has made UK-focused growth & income investment trusts a popular way to repatriate capital back from arguably frothy US markets to the UK, where valuations are generally seen as less inflated.
For retail investors seeking both long-term wealth creation and a dependable income stream, the best-performing UK growth and income trusts have generally shared several characteristics:
- concentrated portfolios rather than benchmark-hugging
- willingness to own economically sensitive businesses
- disciplined valuation approach
- progressive dividend policies
- relatively low ongoing charges.
Five-year leaders (UK equity growth & income)
| Investment trust | AIC sector | Investment style | Approx. 5yr total return* | Dividend yield | Ongoing charge |
| Temple Bar Investment Trust | UK Equity Income | Deep value | ~118% | ~3.75% | ~0.59% |
| Law Debenture Corporation | UK Equity Income | Value + quality | ~89% | ~2.9% | ~0.56% |
| City of London Investment Trust | UK Equity Income | Blue-chip dividend | ~80% | ~3.9% | ~0.36% |
| Lowland Investment Company | UK Equity Income | High income value | ~60% | ~3.8% | ~0.71% |
| Merchants Trust | UK Equity Income | Multi-cap value | ~55% | ~4.6% | ~0.54% |
Source: AIC total return, 16 June 2026
Portfolio comparison
| Trust | Largest holdings | Style | Number of holdings | Income focus |
| Temple Bar | Rolls-Royce, NatWest, Shell, Barclays, BP | Contrarian value | ~35 | Medium |
| Law Debenture | Shell, Rolls-Royce, Marks & Spencer, RELX, HSBC | Value with quality overlay | ~150 | Medium |
| Lowland | BAE Systems, NatWest, 3i, Barclays plus smaller companies | Multi-cap | ~100 | Medium |
| Merchants | Shell, HSBC, GSK, BAT, NatWest | Large-cap value | ~40 | High |
| City of London | HSBC, Shell, AstraZeneca, RELX, Unilever | Conservative income | ~80 | High |
1. Temple Bar Investment Trust
Why it has excelled
Following the appointment of managers from Redwheel, Temple Bar became one of the biggest beneficiaries of the dramatic recovery in neglected UK value shares.
Rather than chasing expensive growth stocks, the managers bought:
- banks
- energy companies
- defence firms
- insurers
- industrials
well before they became market favourites.
That positioning proved highly profitable during 2022-2026.
Investment philosophy
- Deep value
- Strong balance sheets
- Dividend discipline
- Cyclical recovery
Pros
- Outstanding long-term performance
- Attractive dividend
- Still relatively inexpensive versus history
Risks
- Underperforms during growth-led bull markets
- Heavy financial and energy exposure
2. Law Debenture
Law Debenture is arguably the most unusual trust in the sector because roughly one-fifth of its value comes from its independent professional services business.
This provides stable earnings which help support dividend growth during weaker markets.
Portfolio managers James Henderson and Laura Foll focus on undervalued businesses capable of improving profitability over several years.
Recently highlighted is the trust’s ability to outperform through disciplined value investing while benefiting from holdings such as Marks & Spencer (LON:MKS) and Rolls-Royce (LON:RR.).
Strengths
- Excellent long-term track record
- Diversified portfolio
- Unique business provides earnings stability
3. Lowland Investment Company
Managed by Janus Henderson, Lowland combines FTSE 100 companies with smaller UK businesses.
This approach has worked particularly well since smaller companies began recovering after years of underperformance.
Manager James Henderson has consistently argued that UK smaller companies remain significantly undervalued compared with international peers.
Advantages
- Greater exposure to UK economic recovery
- Good dividend growth
- Diversification across market capitalisations
4. Merchants Trust
Managed by Allianz Global Investors, Merchants is one of the UK’s classic high-income trusts.
The portfolio remains concentrated in:
- banks
- pharmaceuticals
- oil majors
- insurers
Its objective is dependable dividend growth rather than chasing fashionable growth sectors.
5. City of London Investment Trust
Managed by Job Curtis for decades, City of London has become the benchmark for conservative UK income investing.
The trust has one of the longest records of annual dividend increases among UK investment trusts.
Performance has been steadier than spectacular, but its defensive characteristics appeal to many long-term ISA investors.
Manager commentary
Several UK equity managers believe domestic shares remain historically inexpensive.
The managers of Temple Bar continue to argue that UK equities trade at a substantial valuation discount despite improving corporate profitability and shareholder returns.
James Henderson of Law Debenture has repeatedly highlighted opportunities among companies overlooked by international investors, particularly where operational improvements can drive earnings growth.
By contrast, Nick Train of Finsbury Growth & Income Trust (LON:FGT) has defended his long-term quality-growth approach despite recent underperformance, arguing that high-quality franchises should outperform over a full market cycle.
Five investment trusts for private market exposure
Charges comparison
| Trust | Ongoing charge | Gearing | Dividend record |
| Temple Bar | ~0.59% | Moderate | Progressive |
| Law Debenture | ~0.56% | Low | Progressive |
| Lowland | ~0.71% | Moderate | Progressive |
| Merchants | ~0.54% | Moderate | Long record |
| City of London | ~0.36% | Low | One of the UK’s longest dividend growth records |
Source: AIC, 16 June 2026
Which trust suits which investor?
| Investor objective | Most suitable trust |
| Maximum capital growth | Temple Bar |
| Best balance of growth and income | Law Debenture |
| Recovery of UK smaller companies | Lowland |
| Highest income | Merchants |
| Lowest volatility | City of London |
Risks to consider
Despite strong recent returns, investors should remember that:
- UK equities remain heavily concentrated in financials, energy and pharmaceuticals.
- Value-led trusts can lag during periods when technology or other growth sectors dominate.
- Investment trusts can trade at discounts or premiums to net asset value, affecting shareholder returns independently of portfolio performance.
- Gearing amplifies both gains and losses.
Investor verdict
The last five years have shown that active management still adds value in UK equities, particularly when managers are willing to invest against prevailing market sentiment.
For investors seeking the best blend of growth and income, Law Debenture stands out thanks to its differentiated structure, diversified portfolio and consistent long-term outperformance. Investors with a higher tolerance for cyclical risk may prefer Temple Bar, whose contrarian value approach has generated exceptional returns during the UK market’s recovery. Meanwhile, City of London remains a compelling core holding for those prioritising dependable dividend growth and lower volatility.
The past five years have been unusually rewarding for UK equity investors who backed investment trusts and with UK equities continuing to trade at valuation discounts relative to many global markets, these trusts remain well placed to benefit if international investors continue to reallocate capital back into the UK.
Disclaimer: The author Steven Frazer has a personal interest in Law Debenture and Merchants Trust.
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