Investment trusts are the unsung heroes of the stock market. Now rebranded as investment companies, they lack the marketing firepower of the major unit trusts and are more complex to understand, but the best of them have thrashed the market.
The following three big names have been around for decades with a proven track record of success. All three are now numbered among the top five most traded investment trusts, according to Interactive Investor, and once you see how they’ve performed, you’ll understand why.
Scottish Mortgage Trust
And the winner is… Scottish Mortgage Trust (LSE: SMT). This £4.5bn mega trust, launched more than a century ago in 1909 when Edward VII was on the throne, has delivered stunning growth of 176% over the past five years, according to Trustnet.com. That’s three times the return on the iShares FTSE 100 exchange traded fund (ETF), which delivered 49% over the same timescale. Sometimes active management is worth paying for.
Not that Scottish Mortgage Trust is particularly expensive, with no initial fee and an ongoing charges figure (OCF) totalling just 0.51% a year (iShares FTSE 100 charges 0.07%). The trust invests in a global spread of equities, with 46% exposure to the booming US market. Top US holdings include Amazon, Tesla Motors and Facebook. It’s roughly 25% invested in Europe, including a stake in Ferrari, and 18% in China, where it holds Baidu and Alibaba. This top quartile fund trades at a premium of 2.3% to net asset value, but that’s the price you pay for success.
Witan Investment Trust
Scottish Mortgage Trust isn’t the only big beast out there. Witan Investment Trust (LSE: WTAN) was also launched in 1909 and now manages assets totalling nearly £1.6bn. Manager Andrew Bell has forced through a successful turnaround plan, adopting a multi-manager approach with 12 investment managers following six different mandates. The result: a whopping 120% return over five years.
Witan is 41% invested in the UK, with holdings such as the London Stock Exchange, spirits giant Diageo and, ahem, BT Group. It’s 25% invested in the US, 16% in Europe and the rest in international stocks. It’s slightly more expensive than Scottish Mortgage Trust, with a total expense ratio of 0.87% a year, but few will be complaining given recent performance, and it trades at a 4.63% discount. However, its UK focus could make it vulnerable to any Brexit slowdown.
Finsbury Growth & Income Trust
Finsbury Growth & Income Trust (LSE: FGT) is a relative minnow with £968m under management, and a parvenu upstart to boot, launched in 1926. While the first two trusts have a roaming international remit, Finsbury is 100% invested in UK stocks, and that has done it no harm at all, with a total blockbusting return of 116% over the past five years.
The fund is run by alpha manager Nick Train, the man behind the hugely popular CF Lindsell Train UK Equity fund (which is up 113% over five years). He has a proven track record in rising and falling markets. Top holdings include RELX, Diageo, Unilever, London Stock Exchange, Burberry and Schroders. Its OCF is 0.8% a year, the premium is 0.36%, yield is 2.02%. Again, it will take a hit if the UK market dips, but right now Train is on a roll.