Out of this world
Ian Cowie reviews his investment stars and encourages shareholders to vote
My top performing investment trust doubled in value last year and there might be more to come in 2026. Several factors that propelled share prices skyward in 2025 could continue to put a rocket under returns this year.
For example, Seraphim Space Investment Trust (stock market ticker: SSIT) is a beneficiary of increased military spending because of the war in Ukraine, events in Venezuela and rising tensions in Taiwan. Three quarters of this company’s net asset value (NAV) is invested in defence-related space technology, such as satellite-based surveillance systems.
“Seraphim Space Investment Trust is a beneficiary of increased military spending because of the war in Ukraine, events in Venezuela and rising tensions in Taiwan.”
Seraphim gains doubly from military spending after repeated warnings from America that European countries must do more for our own protection. The United States Secretary of War, Pete Hegseth, told continental military chiefs in Brussels last February: “I am here today to directly and unambiguously express that stark strategic realities prevent the United States of America from being primarily focused on the security of Europe.”
Since then, Britain and the European Union have both committed to substantially increase defence spending. Noting that two thirds of Seraphim’s NAV is invested in Europe including the United Kingdom, I paid 53p per share last March for stock that currently costs 127p and is now the fourth-most valuable holding among 57 shares in my forever fund.
Even if peace breaks out in Ukraine, for which we must all devoutly wish, I suspect spending in this sector will remain elevated. The €1.7 billion (£1.48 billion) deal signed last month between Seraphim’s biggest holding, the Finnish satellite firm ICEYE that represents 37% of this trust’s NAV, and Germany’s biggest arms manufacturer, Rheinmetall, is a sign of things to come.
Elsewhere among my globally diversified portfolio of 20 investment trusts, extraterrestrial exposure also added to returns from Edinburgh Worldwide (EWI). This company’s biggest holding, accounting for 15.9% of its NAV, is the controversial billionaire Elon Musk’s Space Exploration Technologies, or SpaceX.
That business has more than 8,000 satellites in orbit and, via its subsidiary Starlink, has brought the internet and mobile telephony to many parts of the world which they might never have received either from cable or more conventional means. Stock market speculation that SpaceX is preparing for what could be the biggest stock market flotation of 2026 helped boost returns from Edinburgh Worldwide in 2025.
Shares I bought for 152p in January 2024 cost 226p now. Sad to say, this investment trust has also been affected by the human capacity for conflict after an American investor, Saba Capital, called for all the independent directors of Edinburgh Worldwide to be sacked and replaced by its own nominees.
Unlike any other form of pooled fund, investment trusts enable all shareholders to vote for or against such proposals, and most investment platforms now make it easy to do so online. But votes must be cast before the deadline, which on some platforms could be as early as Monday 12 January.
For what it’s worth, this small shareholder in Edinburgh Worldwide cannot see why we would want to cede control of this investment trust, with its exposure to one of the most exciting businesses on this planet, to a foreign hedge fund. It took me two minutes to vote online against all of Saba Capital’s proposals and I urge every other shareholder to express their opinions, for or against, in good time. Failing to vote is the equivalent of demanding to be ignored.
“It took me two minutes to vote online against all of Saba Capital’s proposals and I urge every other shareholder to express their opinions, for or against, in good time.”
Less controversially, the Bank of England has expressed its desire to continue to cut interest rates in 2026 and did so most recently last month. Lower risk-free returns elsewhere are likely to increase the relative attraction and the stock market price of income-yielding assets.
This is another area where investment trusts have a unique advantage in their ability to smooth returns between good and bad years for the stock market. That means they can sustain dividend distributions and even increase them over very long periods of time.
“This is another area where investment trusts have a unique advantage in their ability to smooth returns between good and bad years for the stock market. That means they can sustain dividend distributions and even increase them over very long periods of time.”
For example, Alliance Witan (ALW) and F&C Investment Trust (FCIT) are both ‘dividend heroes’ that have increased shareholders’ income every year for more than half a century, without fail. I buy shares in both these long-established global funds for my grandchildren’s birthdays every year, after also buying some for my son when he was a boy.
This long-term shareholder knows that not every year will be as kind to investors as 2025 proved to be. But a diversified portfolio of investment trusts should enable us to benefit from capital growth and income, wherever they arise, whatever 2026 holds in store.
