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It was a particular pleasure recently to spend time with James Henderson of Janus Henderson, lead manager of the Law Debenture Investment Trust, who joined us for coffee alongside colleagues Charlotte, Bertie, Andrew and Jonnie. Having met James before, the conversation was both familiar and energising. Perhaps it reflects a shared vintage, but there was a clear alignment in how we think about markets, investing, and the responsibility of stewarding capital over time.

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At the centre of that discussion was the enduring appeal, and persistent underappreciation, of the investment trust structure. Despite having existed for well over a century, and having navigated wars, recessions, and financial crises, investment trusts remain surprisingly misunderstood and underutilised within mainstream portfolios. In our view, that is a significant oversight.

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The Law Debenture Investment Trust provides a compelling example of what makes the structure so powerful. Uniquely, it combines a portfolio of listed equities with ownership of an operating business, Independent Professional Services. While this subsidiary represents a modest proportion of net asset value, it contributes a disproportionately large share of the trust’s income. This creates a stable and resilient foundation, enabling a more flexible and forward-looking investment approach—particularly in smaller companies, where the potential for long-term capital growth is often greatest.

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This combination of growth and income is central to the trust’s philosophy. A long-standing commitment to delivering a rising dividend - the trust’s dividend has increased by over 5% p.a. for the last five years - reflects not only disciplined portfolio management, but also the structural advantages of the investment trust model. Unlike open-ended funds, investment trusts are not forced to distribute all income as it is earned. They can retain reserves in stronger years and draw upon them in more challenging periods, providing a smoother and more dependable income stream for investors.

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Equally important is the concept of permanent capital. Investment trusts are closed-ended, therefore managers are not subject to the daily flows that characterise open-ended vehicles. They are not required to invest capital at inopportune moments simply because it has been received, nor to sell high-quality assets to meet redemptions during periods of stress. This freedom allows for genuine long-term thinking and enables investment in less liquid, higher-conviction opportunities where the rewards can be most compelling.

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The use of modest gearing, a key element of closed-ended funds, further enhances this dynamic. Applied judiciously, it allows managers to amplify returns over time, provided that the cost of borrowing is comfortably exceeded by the returns generated. In the hands of a disciplined stock picker, this can be a powerful tool for compounding capital. We both disagree with the view that investors should de-risk in retirement as the long term effects of inflation for those who might well spend thirty years in retirement, can be devastating.

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And yet, despite these clear advantages, investment trusts remain underrepresented in many portfolios. The reason lies less in their merits and more in the evolution of the wealth management industry itself. Increasing consolidation has led to the rise of large-scale firms, where operational efficiency, regulatory requirements, and risk control necessitate a degree of standardisation. Few get “top-down” asset allocation right. Managed Portfolio Services (MPS) and centralised buy lists have become the norm - efficient, consistent and scalable, but often at the expense of flexibility and genuine differentiation. Added to that has been the adoption of an EU regulation that has caused unnecessary additional challenges for some.

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This has created a subtle but important misalignment. Portfolios are frequently constructed to fit the system, rather than the individual. Diversification can become superficial, with many portfolios sharing similar underlying exposures, while opportunities in less efficient areas of the market, such as smaller companies or specialist investment trusts, are overlooked because they do not fit neatly into model frameworks.

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By contrast, a boutique investment office such as EXE Capital Management is structured differently by design. With a smaller number of clients and a focus on depth rather than scale, it retains the ability to build portfolios that are genuinely bespoke. This allows for high-conviction decision-making, thoughtful allocation to specialist strategies, and the inclusion of investment trusts that offer differentiated sources of return.

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There is also a behavioural dimension that should not be underestimated. Portfolios that are clearly constructed, well understood, and aligned with a client’s objectives tend to inspire greater confidence. This, in turn, supports better long-term outcomes, as investors are more likely to remain committed through periods of volatility rather than reacting to short-term market movements.

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Perhaps most importantly, investment trusts offer a degree of resilience that is increasingly rare. Their longevity is not accidental; it is a reflection of a structure designed to prioritise long-term shareholder interests. Many have endured for decades, even centuries, adapting to changing economic conditions while continuing to compound capital and deliver income.

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The conversation with James Henderson reinforced a simple, but powerful conclusion: in an industry that has become increasingly complex and standardised, there remains a place, indeed a need, for approaches that are grounded in clarity, discipline, and alignment. Investment trusts, combined with thoughtful, boutique stewardship, represent one of the most effective ways to achieve this.

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They are not new. They are not fashionable. They are, in many respects, one of the most robust and enduring vehicles for long-term investment and they deserve both greater recognition and more active advocacy in the years ahead.

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Comments from James Scott-Hopkins, Founder, EXE Capital Management.

The views are those of the author only. The above does not constitute a recommendation to buy the fund and advice should be sought from your financial advisor as to the appropriateness of this fund in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.‍

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