If you're planning to open a Stocks and Shares ISA before the deadline, you should consider putting some of your cash in an investment trust. Here's the lowdown on five of the best.
Investment trusts are great vehicles for investing in the stock market. The charges tend to be low and the returns can be higher than you might expect.
You can read more about how investment trusts work in A great way to invest.
Now I’m going to look at five of my favourite investment trusts right now:
1. Fidelity Special Values
The big attraction here is the trust’s manager – Alex Wright.
Wright has an excellent track record running another fund for Fidelity and has been awarded a ‘AAA’ rating by the Citywire website (not many managers get such a high rating). Wright only took over the Special Values trust last September, but I expect the trust’s performance to be strong over the next few years.
The trust is a ‘special situations’ fund. That means it mainly invests in companies that are relatively low risk, but which still have the potential to grow profits significantly. That profits growth could be driven by changes in the company’s market, or an expansion of the business.
The trust mainly invests in companies that are listed on the London Stock Exchange, but it does invest in some overseas companies too. The trust’s largest investments include Sanofi-Aventis, HSBC and GlaxoSmithKline.
Another plus point is that the charges are fairly low at 1.21% a year.
The only downside is that the trust’s ‘discount’ isn’t as large as I’d like at 8.4%. I explain what investment trust discounts are in A great way to invest.
It’s not that the discount is particularly small. It’s just that I’m especially drawn to investment trusts with unusually large discounts. After all, if I invest in a fund with a 15% discount, I’m paying 85p for something that is ostensibly worth £1.
However, given Wright’s track record and investing style, I still think the Fidelity Special Values trust is well worth investing in.
2. Throgmorton trust
My next choice is a trust that invests in smaller UK companies. Smaller companies are normally seen as riskier investments than the big household names we all know like Vodafone and Tesco, but the rewards can be greater too.
The Throgmorton trust is co-managed by another investor with an outstanding track record. His name is Richard Plackett and, like Alex Wright, he has a AAA rating from Citywire.
Over the last five years, the value of the underlying investments in the Throgmorton trust have risen 99% - way ahead of the FTSE small cap index which has only risen 41%. In other words, if you had bought shares in all the companies in the small cap index, your money would have grown by roughly 41%. But you’d have done much better if you had invested in the Throgmorton trust.
Astonishingly, the trust is trading on a discount of 18% which is way too high for a fund of this quality.
3. Templeton Emerging Markets
I’m a strong believer that it’s a mistake to only invest in the London stock market. You should try to create a diversified global portfolio. And it’s especially important to put some of your cash in emerging markets such as China, Brazil and India.
This is especially true if you can invest for the really long-term: ten or even twenty years. Granted, emerging stock markets may have some bad years, but over twenty years, who can doubt that the emerging economies will continue to thrash the likes of the UK and Japan?
[SPOTLIGHT]The Templeton Emerging Markets Trust is a great vehicle for investing in these fast-growing economies. I see it as the ‘daddy’ of emerging market funds, because it’s been around since 1989 and is currently valued at a chunky £2.1 billion.
The performance has been very good too. Over the last five years, the value of the underlying investments in the trust have risen 74% whereas the MSCI emerging markets index has only risen 12%.
What’s more, research from FE Trustnet shows that this is a very popular trust with ‘fund-of-fund’ managers. These are managers who run investment funds that invest in other funds. So the Templeton trust is basically endorsed by the professionals.
And for what it’s worth, I have invested in this trust too!
4. International Biotechnology Trust
This trust invests in biotech companies that are trying to discover innovative new drugs. Biotech is an exciting industry for two reasons:
- The population is ageing which can only mean increased demand for pharmaceutical drugs
- The big pharmaceutical companies – such as AstraZeneca – are finding it increasingly hard to discover new drugs with big commercial potential. So the big pharmaceutical companies are prepared to pay big money to any biotech company with an exciting new drug.
Admittedly, share prices in biotech companies have already gone up a lot in the last year or so. But there’s plenty of potential for future growth, and the International Biotechnology Trust is well-placed to benefit from that growth.
The trust’s share price has risen 25% over the last year, but the discount is still surprisingly high at 16%. So you’re paying 84p for assets that are seemingly worth a pound.
Be careful though, this trust is higher risk than any of the other trusts I’m highlighting in this article.
5. Alliance Trust
The Alliance Trust is a much more solid and safe trust. It’s increased its dividend every year for 46 years, which just underlines its reliability.
It invests in around 100 companies across the globe – 43% of the fund is invested in the US, 24% in the UK.
There are plenty of funds that have performed better than this one, but performance is gradually being improved by manager Katherine Garett-Cox, and the charges are very low at 0.64% a year.
I see the Alliance Trust as a sensible way to benefit from global stock market growth. It’s unlikely to let you down.
Alternatives
Although I’m a big fan of investment trusts, I don’t think you should put all your stock market cash into them. You should also consider index tracker funds. In fact, I’d say that index trackers should be the core of anyone’s stock market portfolio.
You can read more about index trackers in Six great reasons to choose an index tracker and Top ten index trackers.
Compare Stocks and Shares ISAs
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Why you should invest in shares