Best Investment Trusts

What are the best investment trusts should be an easy question. But as with all investing questions it is far too simplistic. The short answer is that there are indeed a select group of very high quality investment trusts that have consistently delivered good performance with low ongoing costs.

But to really get to grips with the best investment trusts for you, you need to understand your personal financial situation and goals. Investing is not just about returns – especially annualised returns when a long term investor should be looking 20 years into the future rather than five years into the past.

In particular, the recovery from the Great Recession has been one of the greatest bull markets in history with the added benefit of some huge new tech titans rising from the ashes.

The Coronavirus pandemic that ended it is just one of many other likely scenarios that could cause markets to plunge. And while markets are typically swift to recover, past performance is indeed no guarantee of future returns.

What you read here is therefore by no means a recommendation. If you want that then I suggest you find some qualified independent financial advice.

But what I can offer you is a brief analysis of some good quality investment trusts which have a good history and a methodology that so far has seen them stand the test of time.

Crucially, while you cannot control the performance of the markets, you can certainly control your fees to take advantage of them. The best investment trusts have low ongoing fees because those fees eat into your future returns significantly over time.

Best Investment Trusts To Buy Now

This is a popular question and one largely driven by the human condition. We’re left with our ancient priority of the short term over the long term. How can I get food right now so I can survive the night?

Today that’s more like “what can I do right now to quit my job in a month and buy an Aston Martin?” And with that parallel you can see its futility in the modern day. You already have abundant wealth – at least probably a lot more than 95% of the world right now. As hungry as you may be for financial gains, you can probably sleep comfortably tonight.

And it is sleeping comfortably that we should be all about as investors.

Applying short term thinking – especially when it comes to asking Google – is a sure way to affect your returns for the worst.

I for one have no intention of sharing a single best investment trust to buy now because a) it would be unethical and illegal to give unqualified financial advice and b) I don’t have a team working for me on this blog who can keep updating our top pick every month.

I find it shocking that Google results – and indeed the autocomplete suggestions that show up in the search bar as indicators of popular queries – for “best investment trust” always focus on a recent month this year.

Why would you base your investment strategy based on the top performer of a timeframe as short as a few months? That’s crazy. Of course you may want to hop around from top performer to top performer like switching your electricity provider. But investments aren’t like that. If you base your choice on the top performers right now, that information is already out of date and you are likely to end up on the back foot – the fall from a peak into a trough.

If I had to pick one investment trust that I would personally bet on being as effective and relevant in 10 years time as it is today – I would probably go with Bailie Gifford’s Scottish Mortgage Investment Trust. It has been a favourite of mine with a focus on innovation and it has a very low fee 0.38% and has been going more than 100 years.

But in reality I would probably choose neither and go with a passive index fund as these have significantly lower fees and will always match the market, while 95% of fund managers fail to beat the market over the long term.

Best Investment Trusts For Income

Finding the best investment trusts for income is fairly simple as in addition to fees you are primarily looking at dividend yields. Don’t just look at the current dividend yield though. Instead, go back and see how much the dividend yield has increased or decreased over time.

As usual, past performance is no guarantee of future returns but these investment trusts have increased dividend consistently over decades.

  • City of London
  • JPMorgan Claverhouse
  • Murray Income
  • Scottish American
  • Merchants Trust
  • Temple Bar
  • Value & Income
  • F&C Capital & Income
  • British & American
  • Schroder Income Growth

Best Investment Trusts For Growth

Dividend investing is fairly straightforward because dividend paying companies tend to be big and stable. Dividend cuts do happen, but they are probably a lower risk investment in terms of capital protection than more volatile growth stocks.

With growth investing the approach is much more speculative and volatility is part of the deal. Personally, as a young person looking to grow capital rather than securely invest my savings I do prefer a growth-orientated approach. In my experience, a few big winners make up for a multitude of losers.

This is the same approach taken by private equity firms and investors. When investing in a company the worst thing that can happen is you lose 100% of your investment. But with new startups there is also the potential for massive gains of many times your initial investment. Therefore, across a broad portfolio there is a reasonable chance of better gains through this aggressive approach – but of course that is never guaranteed.

For the last decade the real winners in the market have been riding on a technology boom and so the best performing investment trusts for growth at the moment have a big emphasis on technology – such as Polar Capital Technology and the Allianz Technology Trust. But that wave is not guaranteed to continue. I think there is a good chance it will but the costs if it doesn’t could resemble a second Dot Com bubble.

The other major theme of investment trusts for growth is smaller companies. These could be a good way to diversify beyond just technology companies depending on the underlying assets the trust invests in.

Here are some popular investment trusts for growth you may want to research further.

  • Finsbury Growth & Income
  • Scottish Mortgage
  • Allianz Technology
  • Jupiter European Opportunities
  • BlackRock Smaller Companies
  • JPMorgan American
  • Alliance Trust
  • BMO Global Smaller Companies
  • Standard Life Investments Property Income
  • Pantheon International
  • North American Smaller Companies
  • BlackRock Throgmorton
  • Lindsell Train Global
  • Baillie Gifford Japan
  • Electra Private Equity
  • Henderson Smaller Companies
  • Polar Capital Technology
  • Volta Finance
  • Tetragon Financial
  • Invesco Perpetual UK Smaller Companies
  • ICG Enterprise

What Makes The Best Trust?

Fees

As great as trusts may seem – having a fund manager picking stocks for you – statistics show that the vast majority of fund managers fail to consistently beat the market over time.

You can’t control how your investment performs and neither can they really. But what you can control is the fees you pay.

You can match the performance of the market with ETFs and index trackers for very low fees. So if you are looking at a trust hoping to beat the market, you must check their fees to find out how much you will pay whatever their performance ultimately turns out to be.

While an ongoing fee of 1% or so may seem cheap, that adds up to a significant cost over time. And you have to pay that whatever gains or losses are made. And that fee compounds just like your investment, and subtly drains your gains over time.

Asset Allocation

Read around your trust before you invest. Find out what the aims and ethos of the managers are. Do they want to ride a trending industry in the hope of maximising a short term opportunity? Biotech and fintech are big right now but might not be a long term plan. Are they spread across different countries and industries? Do they focus on income, growth or both?

What sort of volatility can you expect – will you have to tolerate extreme highs and lows before you build up a decent return?

There’s a lot of psychological questioning you need to do here as well. Humans tend to mistake their own risk tolerance. Really ask yourself if you are able to stand big losses when the market is down without getting aggressive with your partner/pet/coworkers.

Another part of that question is gearing. Trusts are allowed to borrow money to buy stocks which can amplify gains and losses.

Stewart Vickers
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