Investing in the stock market through investment trusts has a number of advantages. Not only do they provide exposure to a wide range of stocks, but they’re also very cost-effective. On platforms such as Hargreaves Lansdown you can save a fortune on fees compared to costs involved with regular funds.
Here, I’m going to highlight three investment trusts I’d buy for growth. All aim to generate strong long-term returns for investors by investing in higher-growth companies.
My top investment trust for growth
My top investment trust for growth, considering both risk and reward, is Monks (LSE: MNKS). It’s run by Scottish investment manager Baillie Gifford. Its aim is to generate capital growth over the long term by investing in global equities.
There are a few reasons Monks is my top pick for growth. One is that it has a great track record. Over the five years to 31 March, its net asset value (NAV) rose 176%, versus 104% for the FTSE 100 World TR index.
Another reason is the trust’s portfolio is well diversified. It has plenty of exposure to technology (Amazon, Microsoft, and Alphabet are the top 10 holdings), however it also has exposure to other growth industries.
One risk to consider here is the trust’s bias to US stocks. So it could underperform if the US market takes a hit.
Overall however, I think it’s a very sound pick for growth.
Incredible returns
Of course, I can’t talk about growth-focused investment trusts and not mention Scottish Mortgage (LSE: SMT). It’s delivered phenomenal returns for investors in recent years. For the five years to 31 March, its NAV rose 391%.
I like this trust a lot. However, I see it as higher risk than Monks. This trust tends to make big bets on certain stocks. This can pay off at times, but it can also backfire if the stocks fall.
Another reason this trust is riskier is that it has large positions in Chinese tech companies, such as Tencent (its largest holding) and Alibaba. These kinds of companies have a high level of regulatory risk as Chinese regulators are cracking down on big tech businesses.
Considering the risks, I see this trust as more speculative in nature. I’d only invest a small proportion of my overall portfolio in it.
UK growth companies
Finally, a third investment trust I’d buy for growth is BlackRock Throgmorton (LSE: THRG). This is a high-conviction trust that invests in small UK growth companies. It’s performed very well in recent years, returning 166% (NAV return) for the five years to 16 July.
This trust owns some top UK companies. Some of the stocks in the top 10 holdings include Gamma Communications, Impax Asset Management, Games Workshop, and Watches of Switzerland. Overall, the holdings are very different to those of Monks and Scottish Mortgage, meaning this trust could potentially provide portfolio diversification.
One downside is that it has a performance fee. This means that if performance is strong, the fees could be higher than those of some other growth-focused investment trusts.
Overall though, I see it as a good way to get small-cap exposure.