Investment trusts are useful components of my long-term stock portfolio. I like them for several reasons. And in the past, the returns delivered by many trusts have been impressive.
An investment trust is a company engaged in the business of buying the shares of other businesses. And investment managers and their teams make all the buying and selling decisions.
Flexibility and diversification
I like the flexibility of being able to buy and sell investment trust shares just like any other company’s shares. And it’s useful to have another set of stock-picking eyes working for me alongside my own. In that way, I’m diversifying away from myself. And that can be handy at times!
One investment trust I love is Finsbury Growth and Income Trust (LSE: FGT). It’s managed by Nick Train of the Lindsell Train investment house. And he’s known for his focus on businesses capable of compounding the gains in their earnings year after year. Some people call him a compounding champion. And with his investment approach, I see him as operating in a similar manner as well-known billionaire investor Warren Buffett in the US.
Inside the box
So I’m keen on the strategy and past performance of the trust. And I like the long-term performance record of the investment company Lindsell Train. Meanwhile, a look inside reveals the type of underlying investments that will drive my potential returns. And the top five holdings are:
Global analytics and decision tools provider Relx; premium alcoholic beverage company Diageo; global financial markets infrastructure specialist London Stock Exchange; snack business Mondelez International; and fast-moving consumer goods stalwart Unilever.
These are impressive and mature businesses. And I’d entertain owning some of the shares of all of them individually. But I’m happy to pay the extra charges applied by the trust for the luxury of having Train and his team managing the investments.
But it’s worth me remembering investment trusts often trade below their net asset values. And part of the reason for that is those extra charges built in. I’d face lower charges overall if buying individual company shares directly.
Periods of underperformance
Meanwhile, Train is good at keeping the trust’s investors well informed via videos and other means. And he recently cautioned that “holding on to companies with winning characteristics is sometimes difficult because they don’t always perform well all of the time.” And I think that statement is a good summary of the way things are for most long-term investment strategies.
Meanwhile, the recent bear market has been one of those underperforming times for the trust. But because of that, I think right now could be a good time to add to my investment. And I did exactly that during the past couple of weeks.
There are no guarantees of a positive long-term investment performance for me. And that’s even though I like the trust, its strategy, the current valuation and the track record of the manager. However, I’m prepared to embrace the risks in the pursuit of long-term gains.