High flyers: Kepler Trust Ratings for Income, Growth and Alternative Income 2026

2025 Performance

Our intention in making these ratings is to look over a long time frame of five years in order to cover a broad set of markets and avoid rating trusts based on short periods in which luck or circumstances have been helpful. However, it is interesting to look at how last year’s rated funds did over the past 12 months. Our growth-rated funds for 2025 delivered strong returns in a good year for markets, with an average return of 18.9% and only three trusts down. However, they did underperform their benchmarks on average by 0.71%. The median underperformance was 3.6%, with five trusts underperforming by double digits. It’s worth stressing this is to the best fit benchmarks chosen using regression rather than official benchmarks. In particular, there has to be an asterisk over the figures for BlackRock Frontiers, which has a bespoke benchmark not in Morningstar databases, whilst the two Vietnam trusts may have chosen slightly different benchmarks themselves.

_{Source: Morningstar
Past performance is not a reliable indicator of future results}

On the other hand, the income-rated funds outperformed by 1.65% on average, with the median outperformance being 2.3%. Absolute performance was a bit stronger on average at 19.7%, and only two trusts were down for the year. The Asian and Emerging Markets funds did particularly well, but BlackRock World Mining (BRWM) led the pack with excess returns of 53.7%. In the same sector, CQS Natural Resources Growth & Income delivered the best outperformance of the growth-rated funds, at 72.8%.

_{Source: Morningstar
Past performance is not a reliable indicator of future results}

Conclusion

We think the shift in our ratings to value is evidence that a regime change is underway. The average style score of our growth-rated funds has a small tilt to value for the first time, whilst some very pronounced value strategies are now on the list. Meanwhile, the funds we rated for income last year, which are inherently more value-tilted, did better than the growth funds over 2025.

We highlighted in a recent article that there are relatively few trusts with a pronounced tilt to value left in the investment trust sector after a long period that has favoured growth. In particular, the dearth of value strategies in the European sectors may be why only one trust with a European focus has made it onto our lists this year. There’s always a possibility that the pendulum may swing back again, but we think persistent inflation, geopolitical tensions, and a high need for infrastructure spending for AI and green energy are all factors that suggest finding good value managers could be the way to go for 2026.

Appendix: Our methodology

To identify the top growth trusts, we start by looking at performance versus the benchmark. For us, the information ratio is the key metric. This looks at the outperformance of a fund versus an appropriate benchmark and then relates this to the extent of divergence from the benchmark or the extra risk taken. In other words, it seeks to identify whether the active risk relative to the benchmark taken by the manager has been rewarded with outperformance. We pick a benchmark using regression to make sure the best comparator is being used. We then look at the performance of a fund in rising markets, for its benchmark, versus its performance in falling markets — the upside/downside capture ratio. We think this has two attractions. The first is that it reflects the ‘loss aversion’ of the average investor. behavioral finance teaches us that investors prize avoiding loss more than they do achieving a quantitatively equivalent gain. This is captured by an upside/downside capture ratio above one, which means that the fund has a tendency to avoid losses by a more significant degree than it makes gains in rising markets. The second attraction is that it allows us to consider defensive and aggressive strategies on a more level playing field. A trust that does exceptionally well in rising markets and is level in falling markets could rank the same as a trust that protects very well in falling markets but only keeps up in rising markets.

In order to create fair comparisons between funds, we have divided our universe into ‘super sectors’ of asset classes: large- and mid-cap equity funds, small-cap funds, fixed income or equivalent funds, and property funds. This is intended to reflect the fact that generating alpha, in particular, is much easier in small-caps, so comparing small-cap managers with large-cap managers is unfair. It also overlooks the risks that small-caps bring, such as volatility and illiquidity, which means that it is not inherently superior to large-cap investing despite the advantages with regard to alpha. We rank trusts within their ‘super sector’ on all quantitative metrics, and screen out those with a negative information ratio and which are outside the top quartile for upside/downside capture. In order to reward persistence, we review performance over a five-year time period, which makes it much harder for a single year to distort results. We also exclude trusts that have had a management change in the past three years.

It perhaps goes without saying that all our analysis is based on NAV-total-return performance, which reflects the strategy and decisions made by the manager, rather than share price, which can reflect many other factors. As already discussed, we would never envisage such a rating being used on its own to determine investment decisions. Clearly, with investment trusts, the discount of the shares to NAV, the policies, and the quality of the board all need to be considered, too. As importantly, given that quantitative studies are backwards-looking, investors need to make a judgement about the likelihood of past performance patterns persisting in ever-changing markets. By looking over a long time period, we hope to capture a broader set of market conditions, but some trends last for much longer than five years.

For our income ratings, we start with the screens used for the growth ratings. We then look at current yield and dividend growth over five years. To win the rating, a trust needs to have a 3% yield and 3% per annum dividend growth over the past five years as a minimum, allowing for high-yielding funds and dividend-growth funds to be considered together. Once we have screened out the trusts that don’t meet the yield and dividend-growth tests, we order the trusts by their quantitative score on our growth screens, relaxing the info ratio and upside/downside requirements. We apply the same manager tenure screen. We do sense check the quantitative results and will jump in if we think an exception needs to be made, for example, if a benchmark isn’t appropriate, but our threshold for doing so is exceptionally high, as our intention is to present the numbers, not our opinions.

We also present an alternative income rating in order to analyze the top performers in this relatively new and rapidly growing space, which can’t be analyzed in the same way quantitatively because the NAVs are estimated rather than based on market pricing. We think, for the most part, trusts in the infrastructure, renewables, and related sectors are held for a stable and high income, most likely by those living off their income. High yield is likely more important than income growth. We have developed a simple screen showing those trusts that have at least maintained their NAV and their dividend, in nominal terms, over the past five years. With the alternative income space being relatively young, there are not many trusts with a long track record, and just applying these two screens whittles the space down considerably.