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.

Monks diversification

Looking at the holdings as of April 2021, it is clear the trust ran by Spencer Adair has a diversified portfolio. Top holdings included companies such as Amazon, Ryanair, and Prudential. This offsets risk, as it allows the trust to maintain a balanced position in multiple sectors. Comparing this to SMT shows the benefits this can provide, as at times this year SMT has suffered due to the tech sell-off.

The idea of diversification also applies to the sector analysis of the investment trust. With technology at the top with over 23%, further down sits health care (13.5%) and other sectors such as real estate (2.9%). Again, this shows the opportunities Monks provides through its diversification. Add to this the ongoing charges of just 0.48%, and I see plenty of potential here to access an array of sectors for a cheap price.

Another factor I really like about Monks is its investing strategy. The trust is focused on long-term capital growth, taking a priority over income. A patient approach suits my investment style, and as such I see real opportunities in this investment trust. I only must look at the 205% return over the past five years to see this in action. Of course, past performance is not an indication of future returns.

Monks risks

With all that said, there are risks to consider. First, the trust has a large weight in US stocks. As of April, this was nearly 50%. This could cause issues, because if the US market underperforms, the investment trust may also underperform.

The trust also has nearly 15% of its holdings in emerging markets, a factor that could cause problems due to ongoing Covid-19 struggles in countries such as India and Brazil. With this said, a long-term outlook should not be affected by potential short-term volatility – and as such, I do not see this as a major issue.

Why I’m buying Monks

Although the trust does come with risks, I believe the opportunities outweigh these potential problems. A long-term outlook is something I look for when investing.

I also like the diversification the trust can add to my portfolio. It offsets risk by allowing me to access a wide variety of sectors and countries. I also am a fan of its relatively large proportion of holdings in emerging markets. The pandemic has had a major impact on these countries, but I think, long-term, these markets can provide great opportunities for capital growth.

Here, I’m going to highlight two top growth-focused investment trusts I’d be happy to buy for my own portfolio today. Both own a selection of world-class companies and have strong long-term track records.

A top growth investment trust for 2021

One investment trust I hold in high regard is Monks (LSE: MNKS). It’s an under-the-radar offering from Baillie Gifford – the investment manager that runs the highly popular Scottish Mortgage Investment Trust. The aim of this trust is to generate capital growth over the long term by investing in global equities.

What I like about Monks is that it has a very well diversified portfolio. Unlike SMT, it doesn’t take large bets on higher-risk stocks. This reduces risk significantly. This is illustrated by the fact that while SMT is down about 8% this year after the tech stock sell-off, Monks is flat. Having said that, SMT has been the stronger performer over a 12-month time horizon, returning 114% versus 82% for Monks.

There are currently some great stocks in Monks’ portfolio. At 31 January, Alphabet, Amazon.com, and Microsoft were all top-10 holdings. This investment trust isn’t solely focused on tech stocks though. You’ll also find companies such as insurer Prudential, alcoholic beverages giant Pernod Ricard, and make-up powerhouse Estee Lauder in the portfolio.

Of course, there are risks to consider here. One is the trust has a bias towards US stocks. At 31 January, nearly 50% of the trust was in US stocks. If they underperform, the trust could underperform.

However overall, I think this is a fantastic growth-focused investment trust. With ongoing charges of just 0.48% per year, I see this trust as a great way to get global equity exposure.

Capital growth and income

Another investment trust I like is Bankers (LSE: BNKR). It’s also a global equity-focused product. This trust was launched all the way back in 1888, so it’s fair to say it’s been established for a while.

While Bankers has a focus on growth, it also aims to provide a bit of dividend income too. Currently, it offers a yield of around 2%. It’s worth noting this trust is part of an elite group known as ‘AIC Dividend Heroes’. These are trusts that have consistently increased their dividends for at least 20 years in a row. Bankers is actually the joint record-holder for consecutive annual dividend increases with 54 registered.

Like Monks, this investment trust owns some great stocks. Top holdings include the likes of Microsoft, Mastercard, and Visa. Performance hasn’t quite been as strong as that of Monks. Over the last 12 months, the trust has ‘only’ returned about 42%. However, it’s worth noting that during last year’s stock market crash, this trust held up better than Monks.

One risk to consider is it has quite a high exposure to the financial sector (nearly 25%). If this sector underperforms, it could impact the trust’s performance.

Overall however, I see this as a very solid growth-focused investment trust. Ongoing charges are a very-reasonable 0.50% per year.

Old hands

Or maybe I am doing you a disservice and you have taken note of Monks Investment Trust (LSE: MNKS) and Scottish Mortgage Investment Trust (LSE: SMT). They have been around a long enough to grab your attention, having been launched in 1929 and 1909 respectively.

They are big enough as well, with Monks managing £1.77bn of money, while Scottish Mortgage is in charge of a handsome £7.72bn. Investment trusts are companies listed on the stock market, which can be traded easily like shares, and its size makes Scottish Mortgage a constituent of the FTSE 100. Another reason why you may just have heard of it.

American friends

And here’s another. Both have thrashed the FTSE 100 lately. Monks has returned 121% in total over the last five years, while Scottish Mortgage delivered a whopping 205%, according to Trustnet.com. By comparison, the average fund in their benchmark sector, global investment trusts, is up 93%, while the HSBC FTSE 100 Index tracker fund returned just 33%.

This does not mean they will always top the ailing FTSE 100. The two funds have hefty exposure to North American equities, almost half the portfolio in both cases, which means they have benefited from US outperformance. However, the US is starting to look expensive, and if it fell then both of these funds would suffer.

Global spread

You should certainly bear that in mind before investing in either, and also look at your existing portfolio to see how much exposure you already have to the US, and how much more you want – if any.

These are also global funds, so Monks holds around 19% in emerging market equities, 16% in Europe, 8% in Japan, 6% in the UK and 3% in Asia-Pacific. Scottish Mortgage invests 25% in the eurozone and Europe, along with 22% China exposure, plus a bit of UK and India. Again, check carefully to see how this would slot in alongside your existing holdings.

It is also worth casting an eye over the funds’ top 10 holdings: Amazon is number one in both, while Alibaba also features. You may recognise Prudential, Google owner Alphabet and Taiwan Semiconductor Manufacturing, which all feature in the Monks, while Scottish Mortgage includes Tencent Holdings and Netflix, as well as a 4.9% stake in Tesla, which may concern you given recent events.

Low cost

A key attraction of investment trusts is that they have much lower fees than more heavily marketed and popular unit trust funds. For example, Monks has an ongoing charges figure of just 0.52% a year, which falls to just 0.37% with Scottish Mortgage. The lower the charges, the more growth you keep for yourself.

These are not for income seekers, with dividend yields of just 0.17% and 0.58% respectively. At retirement you might want to switch your money into low-risk dividend paying investment trusts like the two discussed in another report. Hopefully, you will have a lot of money to switch by then.

Starting point

These two investment trusts offer ISA investors a broad spread of global stocks and shares that could neatly overlay your existing portfolio. So if time is tight, you can dive in pretty quickly rather than working out how they fit in with your existing investments. Alternatively, if you’re a newbie investor, these two high-powered trusts could give you a one-stop portfolio with a single double swoop.

Both have a tremendous history. Foreign & Colonial Investment Trust (LSE: FRCL) was launched way back in 1868, while Monks Investment Trust (LSE: MNKS) unfurled its flag in 1929.

Colonial power

Foreign & Colonial aims to deliver long-term growth in capital and income by investing in an internationally diversified portfolio of stocks, plus some unlisted securities and private equity. It has a massive £3.36bn under management and currently offers a dividend yield of 1.67%. However, its growth is what catches the eye, returning 95.9% over the past five years, according to Trustnet.com, beating its global benchmark index which delivered 82.7%.

Monks, now run by asset manager Baillie Gifford with £1.6bn under management, also invests in a diversified portfolio of global stocks although its prime aim is capital growth, with a yield of just 0.17%. The growth has more than made up for that, with the trust rising a hugely impressive 126.5% over the past five years. This has been a favourite of mine for years and has amply justified my faith.

Go global

What you get in both cases is a broad coverage of global stocks, regions and markets but with the added zip of successful fund management, as well as gearing, where the fund manager borrows money to invest. Gearing can accelerate returns in the good times and losses in the bad. These trusts are no benchmark huggers as they take risks in a bid to beat the market and, as their performance shows, those risks are paying off.

Both have heaps of US exposure. Foreign & Colonial is 48.8%-invested there, while Monks stands at 44.7%. The US has, of course, performed well lately, boosting both trusts. Foreign & Colonial has relatively lower global emerging markets exposure than Monks, at 12.7% against 21%. However, they also offer roughly similar exposure to their other key regions, Europe, Japan and the UK.

Premium choice

Inevitably there is some crossover, big names such as Amazon, Alphabet and Alibaba all appear in their top 10 holdings, but differentiation as well. If I had to choose one, it would be Monks, largely due to its superior growth record. It is in demand, currently trading at a premium of 1.48%, against a 2.99% discount for Foreign & Colonial.

You could invest this year and next year’s ISA allowance and, if you keep topping them up year after year, given time and a fair wind they could make you seriously rich.