I’m continuing my search for top investment trusts for my portfolio, and today I’m turning to trusts pursuing growth. An investment trust provides diversification in a single investment, and I think that’s especially valuable for reducing the risk typically associated with growth investing.
I’ve been watching Scottish Mortgage Investment Trust for some time, and it’s on my list of growth favourites. It’s run by Baillie Gifford. As the company says, it’s “global rather than Scottish and has nothing whatsoever to do with mortgages.”
It’s a popular trust, and its shares currently trade at 4.8% above their net asset value per share (NAV). I’d be happy enough with that premium, but it does remind me that sometimes a trust can become overvalued on that measure.
It’s why I kept away from the Lindsell Train Investment Trust. At one stage, investors pushed that trust to a premium of 90%, and the price later collapsed. Today, Lindsell Train trades on a premium of 17%. That’s still high by industry standards. But it’s managed by Nick Train, who I think is one of the best in the business. Is that premium justified? I’ll have to think more on this.
US stock holdings
Anyway, back to Scottish Mortgage. Its NAV has risen over 1,000% in the past decade. Its top 10 holdings include Moderna (9.2%), Tesla (4.7%), NIO (2.8%), and Amazon (2.6%). So it clearly carries the growth risks of all of those — especially with Tencent (4.1%) from China in the mix.Â
For one that offers exposure to more top US growth giants, I like the look of Monks Investment Trust. This trust allocates smaller proportions of cash than Scottish Mortgage to what I see as the riskiest stocks, with only 2% in Moderna and 1.8% in Amazon. Interestingly, Monks has 1.7% of its cash in Ryanair.
Monks has grown its NAV by a relatively modest 370% over 10 years. But I think that’s still good, and I see it as less risky than Scottish Mortgage (though clearly still carrying US growth risk). Oh, and it’s managed by Baillie Gifford too.
Growth plus dividends
My next pick is on the Association of Investment Companies’ list of Dividend Heroes. It’s Alliance Trust, having raised its annual dividend for 54 straight years. But it’s not a pure income investment, aiming for returns through a combination of capital growth and dividends.
The trust’s shares have grown at an annualised rate of 14.45% over the past decade. Perhaps inevitably for a growth-seeking trust, it holds Microsoft, Facebook, and Amazon. But Visa and Mastercard are there too. So while there is US tech growth risk, it appears tempered by dividend defensiveness.
UK investment trust
What about UK growth? The BlackRock Throgmorton Trust describes itself as a “high-conviction portfolio, investing in the UK’s most differentiated and exciting emerging companies.”
The company is up front about risk, saying its investments may have low liquidity. It uses some derivatives too, rather than direct shareholdings, which creates added risk.
But it does hold an intriguing portfolio. The trust is 91% invested in the UK, with Electrocomponents its biggest holding. Gamma Communications, Oxford Instruments, and Dechra Pharmaceuticals all feature among the top 10.
I already hold City of London Investment Trust for income, and I’m now thinking of adding one of these for growth.