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.

What I’m looking for

The economic outlook seems pretty uncertain to me, so I’m keen to increase my exposure to good quality defensive businesses. My hope is that these will provide stable earnings and long-term growth, even in a recession.

Rather than focusing on a single company, I’ve been taking a look at an investment trust run by a manager who specialises in this type of business.

Finsbury Growth & Income Trust (LSE: FGT) has been run by star UK fund manager Nick Train since December 2000. Train has a well-deserved reputation for stock picking, with a focus on consumer stocks.

Finsbury Growth & Income Trust’s share price has fallen by 15% over the last year, lagging the FTSE All-Share index. But over the longer periods I’m interested in, Finsbury Growth & Income has beaten the market comfortably:

• Finsbury Growth & Income Trust 20-year gain: 510%
• FTSE All-Share index 20-year gain: 125%

Past performance is no guarantee of future returns. But I’m wondering whether this year’s dip could be a a good opportunity for me to add Finsbury Growth & Income to my portfolio.

What would I get for my cash?

Buying shares in an investment trust provides direct exposure to the trust’s investments. What kind of companies does Finsbury hold?

The trust’s mandate allows it to invest in up to 30 companies, but the top 10 holdings accounted for 83% of the trust’s value at the end of April. I don’t think I need to look much further than those to get a flavour of what to expect:

• Diageo
• RELX
• London Stock Exchange
• Mondelez International
• Unilever
• Schroders
• Burberry Group
• Sage Group
• Remy Cointreau
• Experian

In short, we’ve got some well-known consumer goods companies, with a focus on branded food and drink. Alongside this, there are some financial stocks, plus a mix of data and technology businesses.

I’d be happy to own shares in all of these companies – indeed, I already do own some of them.

Buy now at a discount?

Finsbury Growth & Income shares are currently trading at a discount of around 6% to the market value of its investments.

This discount is tempting as it would effectively allow me to buy the shares held by the trust for 6% less than their market value.

However, the discount also highlights my main worry about buying Finsbury Growth & Income today.

Top holdings such as Diageo and RELX still look quite expensive to me, with dividend yields of less than 2.5%. With interest rates rising, I’m concerned that investors might start demanding higher yields. That could mean further share price falls.

I may buy Finsbury Growth & Income Trust, but I’m not yet convinced that the shares are cheap enough to provide the returns I’m hoping for. For this reason, I’m going to stay on the side lines now, in the hope of a better buying opportunity later this year.

Edward Sheldon: Blue Whale Growth

My top investment fund for 2022 is Blue Whale Growth. This is a global equity fund that invests in high-quality growth stocks. Since its launch in 2017, it has delivered excellent returns for investors.

There are several reasons I like this fund. One is portfolio manager Stephen Yiu’s investment style. Yiu’s aim is to invest in world-class companies that will benefit from structural growth trends and grow their profits over time, but that are also available to buy at attractive valuations. I think this ‘growth at a reasonable price’ approach is a great way to invest.

I also like the focus on technology here. At the end of November, top holdings in the fund included Microsoft, Alphabet, Nvidia, and Adobe – which are all generating strong growth right now as the world becomes more digital.

I’ll point out that Blue Whale is a higher-risk fund due to its growth focus and its bias towards US tech stocks. If growth stocks and/or tech stocks fall out of favour in 2022, this fund could underperform.  

Overall, however, I see it as a very attractive investment fund.

Edward Sheldon has a position in Blue Whale Growth and owns shares in Microsoft, Alphabet, and Nvidia.

Rupert Hargreaves: Finsbury Growth and Income Trust

My top investment fund for 2022 is the Finsbury Growth and Income Trust (LSE: FGT).

UK equities appear deeply undervalued compared to their international peers. Even high-quality market leaders such as Diageo and the London Stock Exchange seem undervalued.

Finsbury Growth and Income invests primarily in UK companies to generate capital growth and income. Its portfolio manager is none other than Nick Train, widely regarded as one of the country’s top fund managers.

The fund invests in a concentrated portfolio of high-quality companies, although it is not limited to the UK. The third-largest holding in the portfolio is US-listed confectionery producer Mondelez International.

I think this trust is a great way to invest in undervalued UK equities while also building some exposure to international stocks. That is why I already own the shares and would be happy to buy more. The trust currently supports a dividend yield of 1.9% and has an ongoing charge of 0.6% per annum.

One risk I will keep an eye out for is concentration in the portfolio. The trust owns just 24 stocks, exposing it to volatility and losses if one large holding does not perform as expected.

Rupert Hargreaves owns shares in the Finsbury Growth and Income Trust and Diageo.

James J. McCombie: The Renewables Infrastructure Group 

The Renewables Infrastructure Group (LSE:TRIG) is my top investment fund for 2022 and beyond. TRIG is a FTSE 250 member and invests primarily in wind and solar energy infrastructure in the UK and Europe. New renewable energy projects will not be in short supply if climate change targets are met. 

TRIG is an income-orientated fund. The dividend yield is currently around 5.1%. Dividends per share have increased in each of the last five fiscal years. Dividend increases have been supported by earnings per share growing at 10% on average over the last 10 years. 

TRIG generates income from selling electricity produced by its assets. Investors get a degree of positive inflation exposure via the linkage to energy prices. But regulated energy price caps can erode this inflation-busting potential. In addition, this fund is exposed to one sector, energy. And at the moment it is expensive, trading above its net asset value. That being said, I am happy to continue buying TRIG in my Stocks and Shares ISA throughout 2022. 

James J. McCombie owns shares in The Renewables Infrastructure Group

Andy Ross: Liontrust Global Smaller Companies Fund 

My top investment fund for 2022 is Liontrust Global Smaller Companies Fund. This is a high conviction fund, which — as the name suggests — focuses on smaller companies. Holdings include Asana, and Fiverr, so it has a strong technology and US slant to it. The US accounts for about 81% of the portfolio. On the flipside, it has no direct exposure to emerging markets, which could be seen as a positive or a negative. In light of Beijing’s clampdown on Chinese tech firms, which may continue in 2022, I’m currently seeing that as a good thing.  

The fund appears to be a top performer with a great track record. Over five years it’s up 150%, well ahead of its benchmark. I also think it’ll do well in the future, especially in 2022 as markets hopefully continue to recover from the pandemic.  

I see the smaller companies-focused fund as a very attractive investment. Although, of course, being exposed to US tech does mean there’s an element of valuation risk with the fund, i.e. its holdings may have very high P/E ratios.  

Andy Ross has no position in the Liontrust Global Smaller Companies Fund or any other companies mentioned.

Paul Summers: Smithson Investment Trust

Having almost doubled in value (at the time of writing) since it launched in 2018, Smithson (LSE: SSON) has quickly become the largest holding in my Self-Invested Personal Pension (SIPP). It’s also my pick of funds to buy for 2022. 

Although not responsible for managing the fund himself (that duty falls to the increasingly impressive Simon Barnard), Smithson’s success serves as another endorsement of the investment approach of Terry Smith. Just like Fundsmith Equity, it looks to buy quality stocks at a reasonable price and then ‘do nothing’. The only difference is that it concentrates on the mid-cap rather than mega-cap market.

One does need to be aware that this is a very concentrated fund, with just 31 positions. This has the potential to make the share price more volatile if a few stocks underperform. Tapping into Smithson’s success also means paying the 0.9%. 

Still, it really is a case of so far, so very good for this low turnover, long-term focused fund. And while diversifying my cash into other holdings is still vital, I fully intend to continue adding to my position here.

Paul Summers owns shares in Smithson Investment Trust and Fundsmith Equity

Stephen Bhasera: Fidelity OTC Portfolio Fund

My top fund for 2022 is the Fidelity OTC Portfolio Fund. This actively managed fund has a great record, having returned 31% over the previous year and thus outpacing its benchmark index, the NASDAQ. Being heavily weighted in favor of tech stocks, the fund has large positions in Microsoft, Meta, Apple, Amazon, Alphabet, Nvidia and several other companies that are the cutting edge of tomorrow’s technologies. I therefore think it stands to benefit handsomely from the innovations being made in various technologies, particularly the Metaverse.

With net assets of about $23bn, this fund is all about growth and has outperformed the NASDAQ consistently over the past 15 years. I have two main caveats with this fund, however, the first being its expense ratio. At 0.8% it is certainly not cheap, but it is cheaper than several competing funds and has the results to justify the cost. Secondly, the fund is slightly more volatile than average. This is however to be expected to a fund that is so bullish on equities. Any risk is somewhat mitigated by the quality of the companies held and I think this fund will continue to do well over time.

Stephen Bhasera does not own have a position in the fund or any of the shares mentioned.

G A Chester: CFP SDL Free Spirit Fund 

Keith Ashworth-Lord’s Sandford DeLand asset management company runs just two funds: CFP SDL UK Buffettology (launched 2011) and CFP SDL Free Spirit (launched 2017). 

Both funds follow the philosophy of ‘business perspective investing’ — as espoused by the great US investor Warren Buffett — but Free Spirit focuses on small and mid-capitalised companies. Its two largest holdings (both above 5%) are Tatton Asset Management and business software firm Kainos. But there are also some more-widely-known names in the top 10, such as Bloomsbury Publishing and YouGov. 

The size of the companies and concentration of the portfolio (29 holdings at the last factsheet date of 30 November) make this a higher risk/reward proposition. The fund can be more volatile than its peers. But as of 30 November, it had delivered a return since launch of 86.2%, compared with a UK All Companies sector average of 29.6%. 

I think Ashworth-Lord has a sound investing philosophy and that Free Spirit can continue to outperform. 

G A Chester has no position in CFP SDL Free Spirit Fund.

Roland Head: Fundsmith Equity Fund

The Fundsmith Equity Fund provides all the things I’m looking for in an investment fund. Transparency, low costs, and a consistent investment approach have delivered a total return of 550% since the fund’s launch (as of 30/11/21).

Fundsmith’s investing strategy is to hold just 20-30 stocks, targeting companies with strong competitive advantages, high profitability, and reliable cash flows. The fund’s top holdings at the end of November included Microsoft, L’Oréal, PayPal, and Philip Morris.

All the fund’s partners, led by founder Terry Smith, hold a significant portion of their personal wealth in the fund. This makes me confident that investors’ interests are well-aligned with those of management.

My main concern with Fundsmith is that many of the stocks held by the fund look quite expensive to me after the bull market we’ve seen since March 2020. I wonder if returns might now slow for a while.

However, I only see this a short-term risk. Looking further ahead, I’m confident that Mr Smith’s disciplined strategy and proven track record are likely to lead to attractive future returns for the fund’s investors.

If I was investing my cash in a fund for 2022, Fundsmith is where I’d start.

Roland Head does not own have a position in Fundsmith or any of the shares mentioned.

Royston Wild: The Renewables Infrastructure Group 

The huge press attention surrounding COP26 this past autumn underlines the rising importance that sustainability commands in the global zeitgeist. This is naturally filtering through to the way investors behave and propelling interest in sustainable funds. Latest figures from The Investment Association show that responsible investment funds commanded two-thirds of total fund inflows in September. They attracted a whopping £1.6bn worth of new investment. 

We at The Motley Fool have seen interest in renewable energy stocks pick up considerably of late. And one UK share I think could be a great way to play the steady transition to green energy from fossil fuels is The Renewables Infrastructure Group (LSE: TRIG). This investment trust has built a portfolio of onshore and offshore wind assets and solar farms in Britain, France, Sweden and Germany. It also operates a battery storage asset in Scotland. 

Such technological and geographical diversification provides added robustness to TRIG’s investment case. Though bear in mind that the often-unreliable nature of green energy generation doesn’t make this investment trust completely free of risk. I’d buy the investment fund because of its juicy 5.2% dividend yield for 2022.

Royston Wild does not own shares in The Renewables Infrastructure Group.

The value of cash savings could decline

However, according to the Office for National Statistics (ONS), the rate of general price inflation in the UK was at 3.8% in October. And earning 1.11% while prices are rising at 3.8% means I’d lose some of my money’s spending power.

Therefore, my ‘investment’ in a Cash ISA would likely end up being a negative investment — in other words, instead of investing for profit, I’d likely be investing for a loss.

And the situation is unlikely to change. Historically, the interest rates for cash savings accounts have almost always lagged inflation. And that’s because central bankers tend to raise base rates as a reaction to inflation in the economy.

For me, the best way of taking advantage of the tax advantages is by choosing a Stocks and Shares ISA rather than a Cash ISA. Studies have shown that the historic total return from stocks and shares has outpaced cash savings. So I’m aiming to build and preserve wealth by investing in shares and share-backed investments within a Stocks and Shares ISA.

There are several simple strategies to pursue. For example, holding the shares of some investment trusts. They are run by managers who pick a selection of underlying stocks. Examples include Finsbury Growth & Income Trust and Smithson Investment Trust.

I’m also keen on holding a selection from the many low-cost, passive index tracker funds available. My choices cover small-, medium- and big-cap stocks in the UK, the US and emerging markets around the world.

Targeting enduring dividend shares

But on top of that broad-brush approach to long-term stock investing, I’d choose shares of individual companies. One popular strategy is to ignore the share price performance of a stock and focus on its dividend yield. A big part of the historical outperformance delivered by the asset class of equities (shares) has come from dividends.

And there are some attractive and growing yields available form UK stocks right now.

For example, I like the look of energy company National Grid‘s yield above 5%. And I’d consider food ingredients producer Tate & Lyle with its yield of over 4%. There’s also smoking products maker British American Tobacco with a yield above 8%, as well as many other dividend-paying stocks.

However, all stocks carry risks and a positive outcome isn’t certain. And that’s true even if I follow a simple and proven investment strategy. Indeed, past positive performance doesn’t guarantee good performance in the future.

But rather than having my cash losing value for certain in a Cash ISA, I’m balancing potential risk against potential reward with the investments in my Stocks and Shares ISA.

Allianz Technology

Tech-focused investment trust Allianz Technology (LSE: ATT) has reaped the benefits, it is now up an astonishing 512% in the last 10 years, making it the best performing fund in the investment trust sector, slightly ahead of Scottish Mortgage at 509%, according to figures from the Association of Investment Companies.

It has achieved this by investing in a spread of mostly US stocks – the fund has 90% exposure to the States. It is crammed with familiar tech names, with Microsoft its biggest holding at 7.60% of the portfolio, while Facebook, Apple and Alphabet also figure in its top 10 holdings, alongside Taiwan Semiconductor and MasterCard.

The fund has consistently performed the IT Technology & Media sector and still has momentum, up 38% in the last year. Unsurprisingly, it trades at a narrow discount to net asset value of just -0.8%, slightly more expensive than its long-term average of -3.4%.

Allianz Technology is clearly a good fund, the big question is what happens to the sector next. You should never buy an investment purely on past performance, as the chances of a repeat are slim. Nobody can bank on getting another 500% growth in the next 10 years.

I still believe the tech charge has further to go, as it embeds itself ever more closely into our lives. The revolution may still be at an early stage, and this fund could be a good way to play it without the risk of buying individual stocks.

Finsbury Growth & Income

These days everybody loves Nick Train, who co-founded Lindsell Train Limited in 2000, and has become one of the UK’s most renowned fund managers. He runs several hugely successful and popular unit trusts with co-manager Michael Lindsell, and has his own investment trust, too, Finsbury Growth & Income (LSE: FGT).

This operates in the UK equity income sector, where it has done brilliantly well, returning a total of 366.43% over the last 10 years, including reinvested dividends.

Top holdings include familiar FTSE 100 names such as Diageo, Unilever, Burberry Group, Schroders and Hargreaves Lansdown, but this is no closet tracker filled with the same old stocks, as you often see in the equity income sector. Train is picking his stocks carefully, and well.

Last time I looked at his trust, it was trading at a premium to net asset value. Today, you can buy it at a small discount of -2.4%, which is actually below its long-term average premium of 0.5%, making this a potentially better entry point. Nobody likes overpaying if they can help it.

In fact, these two funds could complement each other nicely. Allianz Technology will give you a spread of racy tech stocks, mostly from the US, while Finsbury Growth & Income will give you a solid blend of UK income stocks.

Both should make good long-term portfolio holds.

Since its inception, Smith’s Flagship Fundsmith Equity fund has produced an annualised return for investors of 18.3%. Meanwhile, Train’s Lindsell Train Global Equity Fund has returned 19.5% per annum over the past decade.

So without further ado, here are three stocks these two City legends have been buying recently. 

Growth trust 

Last year, Train splashed out £2.4m of his own money buying shares in the Finsbury Growth and Income Trust (LSE: FGT).

Managed by Train himself, the goal of this trust is to achieve capital growth and income over the long term by investing in high-quality UK stocks. Finsbury has returned 76% over the past five years, excluding dividends.

Top holdings include blue-chip champions such as the London Stock Exchange as well as Relx. These two account for more than 20% of total assets. The ongoing annual charges amount to 0.4% per annum and the trust currently offers investors a dividend yield of 1.9%.

Also, unlike other high-quality investment trusts which tend to trade at a substantial premium to net asset value, Train’s offering is currently dealing at a very acceptable premium to NAV of 0.4%. 

All in all, this looks to be a great way to invest alongside Train without breaking the bank. 

Quality growth 

Smith has been buying accounting software provider Sage (LSE: SGE) during the past 12-months.

Sage is going through somewhat of a transition. The company used to rely on CD’s to sell its software, but has been trying to build its cloud software business during the past few years.

According to a trading update at the end of November, cloud software subscription revenue has now passed the significant £1bn milestone. 

Management is now focusing on building out Sage’s online offering to give customers “a comprehensive digital environment that includes products, services and partners.” This investment will weigh on profits in the short term, but it looks as if Smith is betting it will pay off in the long term. 

The stock is currently dealing at a forward P/E of 25, and analysts don’t expect much in the way of growth from the business in its current financial year. However, that could change if Sage’s online investment starts to pay off. 

Struggling for growth

Smith has also been buying Reckitt Benckiser (LSE: RB) recently. This blue-chip stock has fallen on hard times over the past 12-months. After losing around a quarter of its value since the middle of 2017, the stock now looks cheap. 

Shares in this fast-moving consumer group giant are currently changing hands at a forward P/E of 18, that’s compared to around 20 for peer Unilever and Reckitt’s five-year average of 25. It seems the market has deserted this company because its growth prospects aren’t as good as they once were.

The company once boasted earnings growth in the 10-17% per annum range but, for the next two years, analysts reckon profits will standstill. 

It appears Smith is willing to look past this problem patch and focus on Reckitt’s long-term potential. It seems to me as if he’s taking advantage of the market’s dislike of the company to increase his position in this highly profitable, defensive business. 

Vote of confidence

Online platform Interactive Investor has just announced the most popular trusts among its investors, and it’s an impressive bunch. The top two are stellar performers Scottish Mortgage Investment Trust and City of London Investment Trust.

I’m a long-standing admirer of Scottish Mortgage, a global fund that has delivered 180% growth over the past five years, against just 88% on its benchmark IT global sector. However, Rupert Hargreaves covered this beauty yesterday, saying he’d buy this FTSE 100 investment trust right now.

I’m also a fan of City of London, fabled for increasing its dividend every year for more than 50 years, but I sung its praises less than a month ago. That’s okay, though, because the next two also merit close attention.

Tech hero

The third most popular investment trust in the UK is Allianz Technology Trust (LSE: ATT), which aims to deliver long-term capital growth by investing in technology companies around the world. Incredibly, it has even outperformed Scottish Mortgage, returning a simply massive 253% over the last five years.

The trust has clearly benefited from being in the most buoyant sector of all, as its benchmark IT Tech, Media & Telecomm sector grew a storming 213% on average over the same period. Obviously, the trust is a goodie but you cannot expect it to deliver a repeat performance, as sectoral performance tends to be cyclical. 

It can’t go on

Top 10 holdings include Amazon and Facebook, while its biggest single position at 5.20% is Google owner Alphabet. The trust is almost 90% invested in the US, whose tech sector has smashed allcomers over the past five years. Hence its performance, and popularity.

Allianz Technology now trades at a discount of just 0.1 and my concern is obvious. US tech has been on such an amazing run, but nothing lasts forever. You risk jumping on the bandwagon just as it hits a wall. On the other hand, US tech has defied the doubters before. It’s your call.

Train of thought

The UK’s fourth most loved investment trust is Finsbury Growth & Income Trust (LSE: FGT), which invests primarily in UK-listed companies. It has outshone its rivals, growing almost 95% over the past five years, against just 30% across the UK equity income sector. It’s up 18% over last year, against just 2% for its benchmark.

All becomes clear when you discover this £1.65bn fund is run by ace manager Nick Train, whose joint venture with Michael Lindsell, Lindsell Train Global Equity, is the UK’s second most popular unit trust (after FundSmith Equity).

Man of conviction

Top holdings include familiar names such as Diageo, Relx and Unilever. The fact that these three stocks each make up around 10% of the fund shows this is a conviction play, rather than a safety-first closet tracker.

Finsbury Growth & Income also trades at a slight premium, in this case 0.8, which is a vote of confidence from investors. You’re unlikely to find it much cheaper given that the long-term average premium is 0.5. These two trusts may not always be the best in the world, but they’ll take some beating.

If you’re looking to start investing in the stock market, here are three simple investments that could enable you to benefit from Buffett’s wealth of wisdom.

Buffett’s Berkshire

The most immediate way to align yourself with Buffett is to buy shares in his investment company, Berkshire Hathaway (NYSE: BRK.B), which is listed on the New York stock exchange. With a market value of over $500bn, Berkshire is one of the top stocks in the S&P 500 — an index of 500 of the US’s biggest companies. Over the last 53 years, Buffett has increased Berkshire’s value at an annualised rate of a bit over 19%.

Berkshire owns, or has a controlling stake in, a number of private businesses, but also has investments in a range of stock market-listed companies, including American Express, Apple and The Coca-Cola Company. Of course, one consideration for investors today is that Buffett is no spring chicken and — when the time comes — there can be no guarantee Berkshire will be as rewarding under the management of his successors.

Britain’s Buffett

One alternative — and an attractive one for UK investors, in my view — is to buy shares in London-listed Finsbury Growth & Income Trust (LSE: FGT). This investment company’s portfolio has been managed for the last 18 years by Nick Train, who has been dubbed “Britain’s Warren Buffett,” due to his devotion to investing by Buffett’s fundamental principles. Finsbury’s annualised return over the last 10 years has been just under 19%.

Many of the companies Train invests in are recognisably ‘Buffett-type’ stocks — that’s to say, they have certain business and financial characteristics that Buffett looks for. Indeed, one of Train’s biggest holdings, Unilever, was the subject of an attempted takeover last year by Buffett-controlled Kraft Heinz. Other top stocks in Finsbury’s portfolio include drinks giant Diageo, financial services company Hargreaves Lansdown and fashion house Burberry.

Buffett’s bequest

Buffett has said many times that he believes (and there’s plenty of data to support it) a low-cost index-tracking fund will deliver superior returns to those achieved by most investors, whether private or professional. In fact, in a bequest in his will for the benefit of his wife, he has advised the trustee to invest 90% of the cash in an S&P 500 index fund.

Such funds simply mirror the return of the index, less a small annual management charge. S&P 500 trackers are available in the UK. This index has been a strong performer historically (an annualised return of 17% over the past 10 years), but other options, including the FTSE 100 (11% annualised return) or FTSE World (14%) could also be worth considering.

Finally, while it’s unlikely you’ll ever come close to achieving the level of wealth Buffett has accumulated in his lifetime, history shows that long-term investing in the stock market makes financial independence a realistic goal for many people. Furthermore, as a general rule, the sooner you get started, the better.

Top performer

The Finsbury Growth & Income Trust (LSE: FGT) is one of the best performing funds in the UK equity space, having delivered total net asset value (NAV) returns of 81% over the past five years. This compares favourably to the FTSE 100’s total return of just 36% in the same period.

Nick Train, who has been managing the fund since 2000, has achieved this success by investing in a concentrated portfolio of durable, cash generative businesses that are under-priced on its valuation analysis. With just 26 holdings altogether, he is able to keep portfolio turnover as low as possible, while keeping most of his exposure to his highest-conviction picks.

The fund’s five biggest positions are Diageo (9.5%), Unilever (8.9%), RELX (8.7%), London Stock Exchange (8.6%) and Hargreaves Lansdown (8%).

Concentration risk

A concentrated portfolio can be a double-edged sword though, as it can increase your exposure to a small number of winners but does this by reducing diversification, which can increase the overall risk level of the portfolio. It’s all fine when your best investments are doing well, but when things turn sour, you could suffer major losses even if just a few of your top positions implode.

There are countless examples of companies that have ended up in serious trouble, and even the best stocks can suffer huge losses, sometimes abruptly, taking overly concentrated investors down with them.

Contrarian investing

Fidelity Special Values (LSE: FSV) is another fund that has massively outperformed the FTSE 100. It’s an actively managed investment trust that aims to deliver attractive long term capital growth for investors by investing in unloved companies in sectors that are out of favour.

Over the past five years, the trust has beaten the FTSE 100 by a whopping 68 percentage points, after having achieved a cumulative performance of 104% — almost three times the Footsie’s return over the same period.

Long-term view

Alex Wright, who has been managing the fund’s portfolio since 2012, has demonstrated considerable skill in picking under-valued stocks. He’s a value contrarian investor who looks for companies which have potential for share price growth that has been overlooked by the market. Alex has a long-term investment view and only seeks to invest in companies where he understands the potential downside risk to limit the possibility of losses.

Alex’s portfolio typically has a heavy bias towards medium-sized and smaller companies, which is a major factor in the fund’s outperformance against the Footsie. In contrast, however, it is more diversified, with typically between 80-120 stocks held in the portfolio. It also has greater geographical diversification, with up to 20% invested in overseas stock markets.

Finsbury Growth & Income Trust

Finsbury Growth & Income Trust (LSE: FGT) invests in the shares of predominantly UK-listed companies, with the objective of achieving capital and income growth. It aims to generate absolute returns in excess of that of its benchmark, the FTSE All-Share Index. Shares in the trust yield 1.9% and benefit from relatively low costs, with an AIC annual ongoing charges ratio of just 0.74%.

The trust is one of the top-performing UK equity funds, having outperformed its benchmark over the past three years, with an NAV total return of 54.8%, against the benchmark performance of 25.4%.

Portfolio manager Nick Train uses a bottom-up stock-picking approach and looks to invest in a quality companies that appear to be undervalued. Unusually for a fund of its size, its portfolio is relatively concentrated, with a total of just 26 stocks as of 31 July. And this is because the fund aims to keep portfolio turnover as low as possible and focus on long-term holdings, which helps to reduce stamp duty and commissions expenses for investors.

However, its important to be wary of the downside of concentration risk. The Finsbury Growth & Income Trust has a great deal of exposure to the consumer goods sector, with big positions in Unilever (10.3%), Diageo (10.1%) and Burberry Group (6.7%). Along with holdings in foreign-listed groups, such as Dutch brewer Heineken and US snacks giant Mondelez, its total exposure to the sector added up to 48.1% as of 31 July.

Edinburgh Investment Trust

The £1.4bn Edinburgh Investment Trust (LSE: EDIN), formerly run by Neil Woodford until 2014, might be a better pick for income-minded investors. In addition to its aim to produce index-beating absolute returns, the trust seeks to deliver dividend growth that exceeds the UK inflation rate.

The fund is now co-managed by Mark Barnett, who has 24 years of experience in the industry, and James Goldstone, who joined the company in 2016. And although the new team has not run the fund for very long, they have demonstrated considerable skill in picking large-cap dividend-paying stocks.

Over the past three years, the trust has beaten the average UK equity income investment trust by nearly five percentage points, with a cumulative performance of 29.3%. Encouragingly, the investment trust also managed to beat Neil Woodford’s CF Woodford Equity Income fund, which gained 24.7% in the period.

Like the Finsbury Growth & Income Trust, the Edinburgh fund invests primarily in UK-listed companies. Large-cap stocks dominate the Edinburgh Investment Trust, with 55.6% of portfolio value represented by FTSE 100 companies as of 31 July. Top holdings include British American Tobacco (7.9%), BP (4.6%), Legal & General (3.6%), BAE Systems (3.5%) and Imperial Brands (3.5%).

FTSE 250 companies represent another 25.6%, while international equities and small-caps account for a further 8.3% and 6.8%, respectively.

With shares in the investment trust currently trading at a yield of 4%, the Edinburgh Investment Trust seems a great pick for investors looking for income through equities. What’s more, with shares in the trust trading at a modest discount to its net asset value of 8%, investors can effectively purchase its assets for less than the sum of its parts at today’s price.