Investment trusts have navigated a turbulent environment over recent years, characterised by regulatory changes and uncertain economic conditions. While demand for investment trusts has stayed fairly strong, alternative investment vehicles like open-ended investment companies have put pressure with their competitive prices, encouraging investment trusts to band together through consolidation to drive down fees charged thanks to economies of scale. Revenue is expected to grow at a compound annual rate of 2.9% over the five years through 2025-26 to £1.7 billion, including estimated growth of 6.5% in 2025-26, while the average industry profit margin is anticipated to be 27.4%. After the financial crisis in 2008, ultra-low interest rates supported equity growth as investors sought attractive returns from companies supported by cheap lending rates. This environment came to an end in 2022, as interest rates picked up rapidly amid spiralling inflation. As a result, bond values plummeted, and stock markets recorded lacklustre growth, hurting investment income. Although the rising base rate environment persisted into 2023-24, investors priced in rate cuts near the end of 2023, triggering a rally in stock markets. Capital also flowed into bonds as investors sought to lock in higher yields before they would potentially decline in 2024-25. In 2025-26, trusts will likely limit their exposure to US markets despite healthy growth seen from big tech firms in 2024-25, cautious of US fiscal policy, rising debt and the risk that trade tariffs will trigger a recession. Bond markets will also remain volatile, with markets unsure about the speed of rate cuts amid trade tensions. However, a declining base rate environment will drive prices up and support returns for investment trusts. Investment trust revenue is expected to grow at a compound annual rate of 4.6% over the five years through 2029-30 to £2.1 billion. Investors will continue to reduce their exposure to the dollar, with the European Stoxx index positioned for healthy growth in the short term, being seen as an effective safe haven in uncertain times. However, regulatory changes proposed by the Financial Conduct Authority have been contentious, putting investment trusts at a disadvantage to alternative investment vehicles like OEICs. Investment trusts will seek acquisitive growth, using mergers and acquisitions to minimise fixed costs through scale and ramp up competitiveness.

As of July 22, 2025, the yield for a ten-year U.S. government bond was 4.38 percent, while the yield for a two-year bond was 3.88 percent. This represents an inverted yield curve, whereby bonds of longer maturities provide a lower yield, reflecting investors' expectations for a decline in long-term interest rates. Hence, making long-term debt holders open to more risk under the uncertainty around the condition of financial markets in the future. That markets are uncertain can be seen by considering both the short-term fluctuations, and the long-term downward trend, of the yields of U.S. government bonds from 2006 to 2021, before the treasury yield curve increased again significantly in the following years. What are government bonds? Government bonds, otherwise called ‘sovereign’ or ‘treasury’ bonds, are financial instruments used by governments to raise money for government spending. Investors give the government a certain amount of money (the ‘face value’), to be repaid at a specified time in the future (the ‘maturity date’). In addition, the government makes regular periodic interest payments (called ‘coupon payments’). Once initially issued, government bonds are tradable on financial markets, meaning their value can fluctuate over time (even though the underlying face value and coupon payments remain the same). Investors are attracted to government bonds as, provided the country in question has a stable economy and political system, they are a very safe investment. Accordingly, in periods of economic turmoil, investors may be willing to accept a negative overall return in order to have a safe haven for their money. For example, once the market value is compared to the total received from remaining interest payments and the face value, investors have been willing to accept a negative return on two-year German government bonds between 2014 and 2021. Conversely, if the underlying economy and political structures are weak, investors demand a higher return to compensate for the higher risk they take on. Consequently, the return on bonds in emerging markets like Brazil are consistently higher than that of the United States (and other developed economies). Inverted yield curves When investors are worried about the financial future, it can lead to what is called an ‘inverted yield curve’. An inverted yield curve is where investors pay more for short term bonds than long term, indicating they do not have confidence in long-term financial conditions. Historically, the yield curve has historically inverted before each of the last five U.S. recessions. The last U.S. yield curve inversion occurred at several brief points in 2019 – a trend which continued until the Federal Reserve cut interest rates several times over that year. However, the ultimate trigger for the next recession was the unpredicted, exogenous shock of the global coronavirus (COVID-19) pandemic, showing how such informal indicators may be grounded just as much in coincidence as causation.

Revenue is forecast to climb at a compound annual rate of 3.2% over the five years through 2024-25 to £267.1 million. Revenue spiked following a surge in demand related to the pandemic, especially from the healthcare sector. Healthcare establishments quickly worked through PPE supplies amid an uptick in hospitalisations and increasing standards and guidelines for the use of PPE. In 2024-25, revenue is expected to inch up by 1.3%. Sales have come down from their ballooned pandemic figures as companies have rebuilt stock. Weak industrial activity has constrained demand from industrial markets, with exports outpacing UK markets thanks to trade frictions. Construction activity has remained stable, supported by government initiatives like the affordable housing scheme and HS2 railway revenue. Innovation for longer-lasting, more complex masks like those used by firefighters and research labs is helping to outweigh the dip in revenue caused by weakening sales to the healthcare sector as stocks are recuperated. Business profit is under the spotlight today, grappling under the weight of persistent high costs and a slump in mask sales, this is particularly true for large companies like Draeger that are seeing mass order contracts come to an end. Revenue is forecast to expand at a compound annual rate of 2.2% over the five years through 2029-30 to £298.1 million. Construction activity will benefit from ongoing government support and a drop in interest rates, especially in the residential building and infrastructure construction sub-sectors. The government has also committed to increasing spending on R&D activity in the UK. This will support sales to the manufacturing sector, helping to spur revenue growth, though import competition from low-cost regions will continue taking away sales from domestic producers. Climate change and pollution awareness have boomed, incentivising more commercial use of masks in major cities.