Five Best Investment Trusts for 2018

Volatility has returned to the financial markets in 2018, largely driven by political instability.

On a global scale, the threat of trade wars has loomed large as President Trump attempts to reset the imbalance between the United States and its trading partners.

Closer to home, protracted negotiations have prolonged the uncertainty surrounding the United Kingdom’s departure from the European Union.

At times like these, it can make sense to hand over the responsibility for your money to an experienced investment manager who tries to preserve your capital and outperform the market by building a diverse portfolio on your behalf.

What is an Investment Trust?

First launched around 150 years ago, investment trusts are one of the oldest types of pooled investments. An investment trust is a closed-ended fund which means it issues a limited number of shares.

These shares trade on the stock exchange, so it’s a bit like investing in a company, although the price is influenced by both the performance of the underlying investments and the market sentiment towards the trust itself.

An investment trust can trade at either a premium or discount to the value of its underlying investments, known as its net asset value. It can also borrow money to invest- referred to as gearing in the financial industry- but this can magnify losses as well as gains.

While the markets are inherently unpredictable, here are five of the best investment trusts which could help you achieve your investment goals, depending on your outlook for the rest of the year.

1. Personal Assets Trust

If your priority is preserving your capital while potentially generating moderate growth, you might consider investing in the Personal Assets Trust (PAT).

PAT holds shares in larger companies in developed economies including the UK, US and Europe, index-linked bonds (meaning interest payments are linked to inflation), gold, and cash.

The portfolio is defensive so it’s unlikely to generate spectacular returns, but it could protect your capital if the market suffers a downturn.

  • PAT fell by 0.8% in the last year but returned 26.1% over five years according to Trustnet (as of 3rd July 2018).
  • It currently trades at a slight premium and has an ongoing charge of 0.92%.
  • The dividend yield is 1.41%.

Remember, past performance can be a useful benchmark for evaluating an investment, but it isn’t a reliable indicator of future returns.

2. Bankers Investment Trust

Bankers Investment Trust (BIT) is one of the UK’s oldest trusts and offers exposure to the global equity markets.

It aims to generate capital growth by investing in a broadly diversified portfolio, including household names like Apple, American Express and British Petroleum, in developed and emerging markets.

  • It returned 12.2% over the last year and 81.6% over five years.
  • BIT’s ongoing charge is relatively low at 0.44%, and it currently trades at a small discount.
  • The trust yields 2.21% and boasts an enviable record of increasing its dividend every year for more than 50 years.
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3. Scottish Mortgage Investment Trust

Scottish Mortgage Investment Trust also offers exposure to the global equity markets, although with a higher weighting in technology stocks.

It invests in some of the dominant companies in the tech industry like Amazon and Facebook, some of China’s biggest players such as Alibaba and Tencent and other well-known brands including Netflix and Tesla.

The trust can invest up to a quarter of the portfolio in unlisted companies- these are high-risk holdings because they tend to be startups without a proven track record, but they offer the possibility of impressive returns.

  • Scottish Mortgage returned 32.9% over the last year and 230.9% over five years.
  • It currently trades at a slight premium and yields 0.58%.
  • The ongoing charge is low for a trust at 0.37%.

4. Fidelity Special Values

Fidelity Special Values aims to invest in companies with share prices trading below what the trust’s manager considers their true market value.

Better known as value investing, this contrarian style was made famous by Warren Buffet, one of the most successful investors of all time.

This trust favours shares listed on the FTSE 100, and some of the portfolio’s biggest holdings are familiar brands such as Aviva, Lloyds Bank and Royal Dutch Shell.

  • Fidelity Special Values returned 15.5% over the last year and 93.74% over five years.
  • It currently trades at a slight discount, and it yields 1.72%.
  • Its ongoing charge is relatively high for a trust at 1.07%.

5. Templeton Emerging Markets

Emerging markets (EMs), such as India, South Africa and Brazil, offer the prospect of growth because their economies are underdeveloped compared to countries like the UK and US.

However, they’re also considered riskier investments, as they tend to be vulnerable to political instability.

The Templeton EM Trust combines holdings in household names like Samsung and LG Electronics with small and medium-size companies from other EMs around the world.

  • It returned 5.3% in the last year and just over 34.6% over five years.
  • The trust currently trades at a relatively big discount, and its ongoing charge is 1.12%.
  • The dividend yield is 2.16%.

In Summary

Regardless of which trust you invest in, or any other asset class for that matter, the value of your investments can go down as well as up. You could get back less than you invest.


Also published on Medium.

Keith McGuinness

Keith McGuinness is a freelance investment and trading writer and active investor and trader.

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