As 2020 draws to a close, I’m using this time to assess the stocks I believe have potential to deliver price gains in 2021. As part of this review, I’m considering investment trusts to diversify my portfolio and reduce risk.
Investment trusts are funds that have been set up as companies and are listed on the stock market. UK investors have access to over 300 of these stocks and they offer exposure to a range of asset classes.
Given the diverse range of such vehicles, here’s a look at two of my favourite investment trusts for 2021.
#1 – Scottish Mortgage Investment Trust
I can’t talk about investment trusts without mentioning Scottish Mortgage (LSE:SMT). This stock has had a phenomenal 2020 and its long-term performance record is stellar.
Launched in 1909, Scottish Mortgage is investment house Baillie Gifford’s flagship investment trust. It’s run by fund managers James Anderson and Tom Slater who invest in global public and private companies.
There’s a bias towards the US and stocks include the likes of Tesla and Amazon, which SMT recently took some profits on. Scottish Mortgage is a concentrated portfolio but I think the investment experts running it are a prudent pair and have made some great calls.
The share price is at an all-time high but I think the fund managers’ expertise warrants this premium. Since Scottish Mortgage buys global growth stocks, there’s not much of a dividend yield, but I wouldn’t worry about this. The fantastic share price gains are adequate enough for me.
Scottish Mortgage has historically traded in line with its Net Asset Value (NAV) and is on a small premium. I expect it to keep rising in 2021 and hence it’s one of my favourite investment trusts.
#2 – JP Morgan China Growth & Income
Generating fantastic investment returns shouldn’t be limited to just a few markets. I believe that geographical diversification is key, especially when 2020 saw UK companies slash or even axe their dividends. While the coronavirus pandemic may have originated from China, this economy has recovered and delivered some great returns
For these reasons, I like JP Morgan China & Income (LSE: JCGI). This investment trust is a concentrated portfolio that invests in Greater China companies. It’s run by three fund managers who have a wealth of investment experience.
The top 10 holdings account for approximately 45% of the portfolio, with the largest holding, Alibaba, at a 9% weighting. I’m not overly concerned about such concentrated portfolios as I’m paying for the the fund managers’ skill.
JCGI aims to provide best of both worlds, namely growth and income. The fund managers are focusing on the growth of ‘New China’. This includes companies and sectors that are capitalising on the transition of the country to an even more consumer-driven economy.
For the income-hungry investor like me, JCGI has an attractive dividend yield of approximately 3.5%. With this investment trust, not only do I get geographical diversification but also income, which has been difficult to get lately due to the coronavirus crisis.
JCGI has historically traded on a discount to its NAV and is currently on a small premium. Although the shares are at an all-time high, I believe now is an attractive entry point and expect the investment trust to rise further in 2021.