Big is beautiful for dominant funds

For more than a century shareholders have collected solid returns from top investment trusts dealing in worldwide markets. And though these general international trusts are often criticised as "big and boring", a growing number of Isa investors are buying into them as a low-cost means of obtaining a diverse equity portfolio.

As opposed to the more specialist funds, such as those investing in one overseas country or in a sector such as technology, the international generalists offer savers a steadier ride, a long-term home for cash and cut the need for frequent monitoring. The 15 general international trusts tend to be the oldest and largest, offering investors long-term capital growth and some dividend payments.

The sector is dominated by four trusts, known as the leviathans of the investment trust industry. Between them, Alliance, Foreign & Colonial, Scottish Mortgage and Witan control assets totalling almost £38bn.

Funds of this size will never produce top-drawer returns because their portfolios are so widely spread - usually in international blue chip shares. Nor will they be the answer for those seeking a high income. Most generate gross income of 2% to 3%.

But they can be a suitable way for first-time investors to gain exposure to world stock markets without taking big risks, and they have low charges when purchased through a savings scheme.

They offer an unusually broad spread of risk by investing in a wide range of stock markets. There is no typical profile - anything from 10% to 65% in the UK with the rest spread across other major sectors.

The international trusts tend to be largely owned by private investors which makes their share values less vulnerable to institutions offloading big holdings.

While short-term performance will never be spectacular, it can still be attractive when conditions are right. Last year Foreign & Colonial, Scottish Mortgage and Witan trusts all produced total returns of more than 30%.

In the long term, an investment placed 10 years ago in the average international general trust as measured by the Association of Investment Trust Companies would now be worth more than 350% of the original sum.

Which one should you choose? It is true that many rely on similar asset allocation and investment strategies. But some do have interesting, unique features.

Alliance, for example, is managed outside of any major investment group with a team of five running the trust's portfolio. They have invested most heavily in services such as telecommunications. The fund has a particularly low total expense ratio of 0.13%.

For a truly international portfolio, you might consider Edinburgh Worldwide. Just 10% of its assets are in the UK, with 52% in the US, around 20% in Europe and almost 11% in Japan.

The mother of all generalists, in terms of size and longevity, is Foreign & Colonial. With Jeremy Tigue at the helm, the fund's historically strong performance has restarted after a period in the doldrums five years ago. It has given investors a return averaging just over 20% a year over the past five years.

There are also wide differences in investment style within the sector. While all are managed on a relatively conservative basis, some, such as Brunner, Mercury Asset Allocator and Witan, tend to be orientated towards growth stocks.

Others, such as Bankers and Law Debenture, try to pick undervalued stocks rather than those with the greatest growth prospects.

Investors should also look at the trusts' attitudes to gearing. Used effectively, the ability to borrow money can boost returns in good markets. F&C and Scottish Mortgage tend to gear more than Witan and Alliance.

•The AITC (0800 707 707) and Bristol-based Whitechurch Securities (0800 374 4130) supply free factsheets on international general trusts.

Case study: Parents build girls' nest egg

Harriet and Georgia Vessey could be worth a good few thousand each when they reach 18. For both Harriet, four, and Georgia, three, are now participants in Jump, the monthly savings scheme aimed at parents offered by Witan investment trust.

Their parents, Charlotte (above right), 36, and Nicholas, 41, signed up for the plan in January and have not regretted it - Witan's progress has been one of the best in its sector.

Neither Charlotte, who was a bilingual secretary in the wine trade, nor Nicholas, a product designer, owns any shares themselves. "Nick's parents suggested Witan because they had read about it and thought it had a good performance and knew where it was going," says Charlotte. "Nick's brother also went into Witan on their recommendation."

The idea is to save £25 each month for each of the girls until they need higher education. They won't know about their nest egg until then.

"We'll stick with this. It's very easy and it was simple to start," Charlotte adds.

Until December 8, Witan will give the 1% upfront charge on all new investments into its Jump children's savings plan to Tommy's Campaign, which researches problem pregnancies, and Jeans for Genes, which raises funds for research into treating genetic disorders in youngsters.