Investment trusts can be a great way for us to buy and hold over the long term. With a professional fund manager making all the investment decisions, we don’t need to worry about cherry picking each individual stock, allowing us to focus on picking the best trusts suited to ourselves, based on the investment style, historical performance and fund costs.
Global equity
The Scottish Mortgage Trust (LSE: SMT) is, in my opinion, one of the best investment trusts to invest for global equity exposure. The £6.5bn flagship Baillie Gifford investment trust invests in both developed and emerging economies, giving its fund manager wide scope to select his best investment ideas.
James Anderson, who has been managing the fund since 2000, likes to maintain a concentrated portfolio of his high-conviction picks. It’s no surprise then that the top 10 holdings accounted for more than half its total assets, while the total number of holdings was 78. This included 42 unlisted companies, which in aggregate accounted for 14.6% of the portfolio.
Impressive performance
Over the past five years, the company has delivered impressive total net asset value (NAV) returns of 171%. That’s more than double its benchmark FTSE All-World Index performance of just 79% over the same period.
It’s clear that the fund has generated this outperformance thanks to its strong preference in technology stocks, which together account for nearly 29% of its assets. On the downside, while this sort of sector-heavy exposure has reaped significant rewards in the past, it also makes the fund vulnerable to a tech sell-off, like the one taking place right now.
But despite its historic outperformance, fees for investing in the fund are surprisingly low, with an ongoing charges figure of 0.44%. Fund fees are sometimes the best predictor of future returns, and it’s particularly important to choose a fund with low fees when you’re investing over a long period of time, as compounding means the costs really add up.
Picking winners
Another fund I’d consider buying for the next decade is Baillie Gifford Shin Nippon (LSE: BGS), an investment trust which focuses on small Japanese companies.
The fund has a really strong track record of picking winners. Over the past five years, Shin Nippon has produced a total NAV return of 278% — a little under two-and-a-half times its benchmark MSCI Japan Small Cap Index’s performance of 113% over the same period.
New Japan
Shin Nippon, which means ‘new Japan’, has achieved this outperformance by focusing on small, fast-growing Japanese companies with innovative business models and dynamic management teams. These companies have recently performed really well due to attractive growth prospects and supportive government policy towards deregulation, outsourcing and promoting entrepreneurship.
Moreover, the limited broker coverage of Japanese small-caps has also added to value which has been created by its in-house research team.
The one downside of this fund is its higher costs. With an ongoing charges figure of 0.89%, it charges just over double the cost of holding the much larger Scottish Mortgage Trust. Still, I believe that this may be a price worth paying in order to invest alongside a highly successful specialist team which has had a long and impressive track record of success.