Why small investment trusts can make great investments

Big is often better when it comes to investing, but some of the smallest investment trusts can be some of the best performers.

We are used to putting our money into megacap stocks like Nvidia and Microsoft, especially in an era where rising levels of index investing compound the advantages of putting money into the biggest stocks.

But does the same apply to investment trusts?

“Investment trusts come in all shapes and sizes but it tends to be the largest trusts that attract most attention,” said Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC), an industry body that represents investment trusts.

“That’s a shame because small can be beautiful in the investment trust industry,” Brodie-Smith continued. “There are some smaller and relatively low-profile trusts that could make excellent additions to investors’ portfolios, but they don’t always get the interest they deserve.”

Some of the best-performing investment trusts are some of the smallest. Three of the best-performing trusts of 2025 have less than £200 million in assets, according to the AIC’s analysis.

And there are ways in which smaller investment trusts offer specific advantages compared to their larger counterparts.

Why smaller investment trusts can be better

Investment trusts – a type of closed-ended fund – offer several unique advantages to investors, not least active management – the potential of beating the index.

But their structure also makes them the ideal vehicle to access smaller, less liquid companies. Small cap stocks and private firms can sometimes offer the best long-term growth prospects, but their small size means they can be illiquid.

That causes problems for open-ended fund managers, as redemptions could force them to sell off these long-term investments at inopportune moments. Investment trusts don’t have this problem.

And smaller investment trusts are even better-suited to this purpose than larger trusts. A large investment trust investing in a micro-cap stock will quickly become its largest shareholder, without that company forming a significant part of its portfolio.

Smaller investment trusts can be more nimble on this front. As such, some have specific mechanisms in place to ensure that they remain small.

River UK Micro Cap (LON:RMMC), for example, has a share redemption mechanism designed to keep its net asset value (NAV) at around the £100 million mark. According to its latest report, this is “in order to:

• enable the Company to exploit fully the underlying investment opportunity and to deliver high and sustainable returns to Shareholders, principally in the form of capital gains;
• enable portfolio holdings to have a meaningful impact on the Company’s performance, which might otherwise be marginal within the context of a larger fund; and
• ensure that the Company can continually take advantage of the illiquidity risk premium inherent in micro-cap companies.”

Last year, MIGO Opportunities Trust (LON:MIGO) implemented a similar mechanism to ensure that its NAV wouldn’t exceed £150 million. It also reduced the number of holdings in its portfolio – as an activist investor, this enables it to have a more influential stake in each.

The best small investment trusts

According to analysis from the AIC, these were the three top-performing investment trusts through with total assets below £200 million:

^{Source: theaic.co.uk / Morningstar (to 31/12/25). Returns in base currency.}

Saftar Sarwar, chief investment officer at Binary Capital, picked out CQS Natural Resources Growth & Income as one of the most appealing small investment trusts.

“Stellar performance in 2025… may not be a transient phenomenon,” said Sarwar. “It could reflect a deeper narrative. The world’s insatiable demand for critical minerals and energy, driven by energy transitions, major technological advancements and geopolitical realignments, provides a robust, long-term tailwind.”