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ASOS

What it does: ASOS is an online fashion retail firm, comprising 17 different brands. It operates around the globe.

By Andrew Woods. My growth stock pick for October is ASOS (LSE:ASC). For the years ended August, between 2017 and 2021, earnings per share (EPS) rose from 77.2p to 128.9p. Over this period, the company had a compound annual EPS growth rate of 10.8%. I consider that to be consistent and strong.

However, ASOS has been operating in a challenging environment for the retail sector more generally. As the cost-of-living crisis has hit, customers have had less disposable income to spend on clothes. Inflation has also led to shrinking profit margins, as wages and costs increase. The share price reflects these problems, having fallen 82% in the past year.

Despite this, sales improved during the summer and the business expects full-year profits to be within the initial guidance range. Another indication that the company is in decent financial shape is its low levels of debt. This means it’s potentially well placed to work on expansion as we emerge from the pandemic.

Andrew Woods has no position in ASOS.

Kainos Group

What it does: Kainos is an IT support services business that helps companies, organisations and governments digitalise operations.

By Zaven Boyrazian. Kainos Group (LSE:KNOS) helps its clients digitalise operations and deploy Human Capital Management solutions through its partnership with Workday. The group serves the public and private sectors, with its most prominent collaboration being with the National Health Service.

Despite record double-digit organic sales growth, the stock has lost nearly a third of its market capitalisation in the last 12 months. It seems the recent drop in profit margins has spooked some investors. And given that the stock trades at a lofty premium of 47 times earnings, this volatility isn’t surprising.

The drop in profitability comes from the steady decline of pandemic tailwinds rather than internal issues. Meanwhile, demand for Kainos’ services continues to grow with a record level of bookings at £349.8m.

While it’s frustrating to see profitability wobble, the underlying business remains uncompromised. And with an impressive amount of potential, I believe the recent downward trajectory presents an attractive buying opportunity, even if the stock still looks expensive.

Zaven Boyrazian does not own shares in Kainos or Workday.

Halma

What it does: Halma is a collection of businesses focused on industrial safety, environmental monitoring, and life sciences.

By Stephen Wright. I’ve been buying shares in Halma (LSE:HLMA) over the last month. So I’m putting my money where my mouth is on this one. 

The reason I’ve started investing in this stock is that I think that it’s finally trading at an attractive price. The company has always looked great but expensive to me.

Halma has a straightforward business strategy. It attempts to acquire businesses and use the cash they generate to buy more businesses.

The company also has a decentralised corporate culture. In other words, it leaves individual businesses to get on with what they do well. 

Halma’s share price fell below £20 per share recently. At those prices, I think that it’s a terrific buy.

If the stock reaches that price again in October, I’ll be looking to increase my investment significantly. But I think Halma is a great company that I’m happy owning shares in.

Stephen Wright owns shares in Halma.

Spire Healthcare 

What it does: Spire Healthcare provides private healthcare services in the UK through 39 hospitals and eight clinics. 

By Royston Wild. The resilience of healthcare-related spending means stocks like Spire Healthcare (LSE: SPI) are popular picks during tough economic times like these.

Theoretically, Spire’s turnover might suffer as Britons start to feel the pinch. As times get tough, people could be tempted to wait that bit longer for treatment and get it for free on the NHS. 

But the size of NHS waiting lists today means that demand for private care continues to rise strongly. At Spire, revenues rose 7% in the six months to June as private revenues jumped almost 22% year on year.

A record 6.8m people were on NHS waiting lists in September. And the Institute for Fiscal Studies thinks the number will get worse before it gets better, possibly even hitting 10.8m people in 2024 before slowly falling. 

This explains why City analysts think Spire will report healthy earnings growth over the short-to-medium term. It’s expected to flip from losses of 7.1p per share in 2021 to earnings of 4.4p this year. And in 2023 earnings are tipped to double to 8.8p. 

Royston Wild owns shares in Spire Healthcare. 

Scottish Mortgage Investment Trust

What it does: Scottish Mortgage Investment Trust is one of the world’s biggest and most famous trust funds. The Baillie Gifford & Co fund invests globally and looks for strong businesses with above-average returns.

By John Choong. While Scottish Mortgage Investment Trust (LSE: SMT) has performed atrociously thus far this year, investors are told to expect a five-year return. As such, the current drop could pave way for a monumental recovery when the global economy eventually recovers.

The trust’s top holdings are mostly growth stocks, with the likes of Moderna and Tesla having plenty of upside to their earnings over the next decade, and could help boost the share price. Additionally, Scottish Mortgage has quite a healthy exposure to China. As the second largest economy in the world reopens from its Covid-19 lockdowns, Chinese equities are seeing steep rebounds, and Scottish Mortgage is expected to benefit from that to some extent.

Either way, with its share price down nearly 50% from its all-time high, this could be an opportune time for me to start a long-term position in a fund with historical success. That being said, investors should be wary that further lockdowns in China could prolong its road to recovery.

John Choong has no position in Scottish Mortgage Investment Trust.

Smithson Investment Trust

What it does: Smithson is a global investment trust run by Fundsmith. It invests in high-quality, small- and mid-cap growth stocks.

By Edward Sheldon, CFA. Smithson’s (LSE: SSON) share price has taken a big hit in 2022 as growth stocks have fallen out of favour and I think this has presented a buying opportunity. Currently, the investment trust is trading at a significant discount to its net asset value (NAV).

I like Smithson’s approach to investing. Like its big brother, Fundsmith Equity, it typically invests in companies that are highly profitable. Meanwhile, it avoids companies that are heavily leveraged, as well as those in industries that are rapidly changing. Names in the portfolio at the end of August included UK property website powerhouse Rightmove, medical technology company Masimo, and cybersecurity specialist Fortinet – all great companies.

It’s worth pointing out that the Smithson portfolio is quite concentrated. So, stock-specific risk is quite high. If a handful of stocks in the portfolio were to underperform, overall performance could be impacted significantly. I’m comfortable with this risk, however. I think Smithson is a good way to get exposure to smaller growth companies listed internationally.

Edward Sheldon has positions in Smithson Investment Trust, Rightmove, and Fundsmith Equity.

Hargreaves Lansdown

What it does: Hargreaves Lansdown is a United Kingdom-based digital wealth management service administering company.

By Paul Summers: The share price of Hargreaves Lansdown (LSE: HL) has been in awful form in 2022 and it isn’t hard to fathom why. 

At a time when most people are just trying to pay their energy bills, it was inevitable that revenue at the company would suffer. Combine this with a reduction in new business and assets under administration and the 35% fall, while severe, makes some sense. 

Even so, I do think this is shaping up to be an attractive contrarian play. A price-to-earnings (P/E) ratio of 17 isn’t screamingly cheap but it does seem a very enticing price for a company that generates some of the highest margins in the FTSE 100. Moreover, the desire of many to take more control over their finances will surely prove a decent growth driver for years to come. 

In the meantime, there’s a 4.7% forecast yield in the offing.

Paul Summers has no position in Hargreaves Lansdown

Smithson Investment Trust (LSE: SSON) has crushed the market’s performance over several years. And following the investment trust‘s strategy could help me beat the market as well. The method can be distilled into three simple steps (more on that below).

Between October 2018 and December 2021, the Smithson share price increased by about 97%. But the trust got caught in the recent bear market and the stock dropped by about 22% over the past year.

Nevertheless, Smithson beat the market. The company invests in small- and mid-cap companies with market capitalisations between £500m and £15bn. And as a comparison, the UK’s FTSE 250 index rose by roughly 20% while Smithson was outperforming. And over the same period, the FTSE AIM All-Share index gained around 22%. However, Smithson does invest in markets all over the world.

But Smithson left the UK’s mid-cap and small-cap indices in the dust. So how did it do this? Well, let’s first look at what the company doesn’t do. It doesn’t invest with borrowed money. It doesn’t hold more than between 25 and 40 stocks. It doesn’t use short-term trading strategies. And it doesn’t use derivatives. Smithson achieved its gains the old-fashioned way — by simply selecting, buying and holding stocks with money it already had.

Step 1 — a focus on compounding

It focuses on investing in businesses that can compound in value over many years. And that’s the first step I’d follow to try to beat the market. The trust looks for companies with an “established track record of success.” For example, an investee business might have already established a dominant market share for its products and services. Or it could have brands or patents that competitors would find difficult to replicate. 

Smithson aims to identify businesses with “strong” profitability that’s sustainable over time. And it looks for “substantial” cash flow that businesses can reinvest into operations. 

Step 2 — fair valuation

A key part of Smithson’s strategy is to seek a fair valuation before buying any stock it identifies as a candidate. So, the second step I’d follow is to focus on valuation. As part of this, it avoids businesses with lots of debt. And it shuns firms that rely on debt to provide an adequate return. It also skips past businesses in sectors and industries that innovate “very quickly and are rapidly changing”.

Instead, Smithson aims to pick enterprises that have demonstrated an ability to continue outperforming competitors. And that approach leads the trust to find value in companies that “rely heavily” on intangible assets. For example, in industries such as information technology, healthcare and consumer goods. 

Step 3 — a long-term approach to investing

Having found great long-term compounding business selling at fair valuations, Smithson aims to hold their shares for years. And step three for me is to take a long-term approach to my investing. And that’s so that operational progress in each business can compound over time while the shares are in my portfolio.

There are no guarantees of a decent long-term investment outcome for me, even if I follow Smithson’s three-step strategy. However, just in case I can’t do it as well myself, I also have an investment in Smithson Investment Trust!

That’s why I’ve been adding to my positions in some investment trusts over recent weeks (or strongly considering doing so).

Scottish Mortgage Investment Trust

One of the most high-profile casualties of 2022 so far has been Scottish Mortgage Investment Trust (LSE: SMT). Shares are down 37%.

Taking a ‘glass-half-full’ approach, this does at least give me a chance to add to my position. When the stock market recovery comes, I’m confident it’s the quality growth stocks that Scottish Mortgage holds — including Amazon, chip-making manufacturer equipment ASML and luxury goods firm Kering — that will do very well.

Clearly, this might take a while. Inflation has the potential to temporarily dent the earnings of at least two of the three companies mentioned above. Some holders may also be anxious about the recent departure of co-manager James Anderson.

Notwithstanding this, it’s hard to be bearish on a trust that’s double the price it was five years ago, even after this year’s big fall. A 0.34% ongoing charge is great value in the active management space too.

I fully intend to buy some more SMT in June.

Montanaro European Smaller Companies Trust

One investment trust I’ve already been topping up on has been Montanaro European Smaller Companies Trust (LSE: MTE). That may seem like a brave (or foolhardy) decision, considering what’s happening in Ukraine. However, I’m of the opinion that a lot of the damage has already been done. The trust’s value has tumbled 37% in 2022 so far.

Again, it’s the long-term returns that I’m more bothered about. While past performance doesn’t guarantee anything, a 75% increase in MTE’s share price since 2017 does suggest that manager George Cooke is a great stock-picker.

Indeed, part of the reason for the trust’s success is that he is able to snap up shares that the majority of market participants aren’t willing, or able, to research. This leads to price inefficiency. And that’s where true wealth-building lies.

Yes, there could be more bumps ahead. The ongoing charge of 1.2% is also high. However, I’m confident the superior performance of MTE over the next few decades will make up for this.

Smithson Investment Trust

Similar to MTE, I’ve been continuing to increase my position in Smithson (LSE: SSON). This is despite it giving up a lot of the gains it amassed since the Covid-19 crash of 2020.

Just like its big brother Fundsmith Equity, Smithson aims to buy quality stocks at reasonable prices and then do nothing. Given just how far shares have fallen, I’m pretty sure manager Simon Barnard has been rubbing his hands at the opportunities currently available to him.

That said, quality stocks rarely go for bargain prices and there’s a potential for portfolio members like Rightmove and Fevertree to continue falling if investors remain skittish about the macro-economic picture.

Even so, I remember not taking advantage of Smithson plummeting in value in 2020 only to deeply regret it later. I’m determined not to make the same mistake again.

Great start

Don’t mistake me for some kind of stock market masochist. No one actually enjoys seeing the value of the biggest holding in their Self-Invested Personal Pension (SIPP) fall by a double-digit percentage. In fact, Smithson’s decline has the potential to hurt more than most. given that investors like me have been spoiled by performance for the majority of its existence. 

The small- and mid-cap-focused fund was launched back in October 2018. No doubt helped by its link to star money manager Terry Smith (Smithson comes from the Fundsmith stable and adopts the same strategy), investors were queueing up to throw their money in the ring. And up until recently, this confidence has been richly rewarded. 

From inception to the end of 2021, the trust delivered an annualised gain of 24.5%. That compares very favourably to the 13% achieved by its benchmark — the MSCI World SMID Index. It also more than justified the 0.9% annual management charge, in my opinion.

What’s gone wrong?

The recent wobble may be due to a number of things. First, there’s the issue of valuation. As a quality-focused fund, Smithson doesn’t look for cheap stocks.

Like its big brother, Fundsmith Equity, it targets companies with valuable brands and huge market shares that generate consistently high returns on the money they put to work. This includes property website Rightmove, mixer-drinks supplier Fevertree Drinks and Domino’s Pizza Group. Unfortunately, such businesses are rarely without friends and priced accordingly. That’s fine when markets are behaving themselves. Less so when investors are fretting over earlier-than-expected interest rate rises.

The fact that almost half of Smithson’s portfolio comes from the IT sector probably doesn’t help either. By sharp contrast to last year, companies in this space have now fallen out of favour. Thankfully, Smithson makes a point of avoiding the unprofitable fluff whose share prices are now falling faster than Boris Johnson’s approval ratings. Nevertheless, investors seem to be throwing the baby out with the bathwater.

The aforementioned performance of its shares may have also seen a few profit-takers emerge from the shadows. After all, Smithson’s market-cap had grown to £3.5bn by the end of December. That’s already pretty large for a trust that is designed to invest in companies lower down the food chain. In fact, the median size of business in the portfolio is actually £10bn! Moreover, manager Simon Barnard’s investment strategy is still to be comprehensively tested and some people may be getting out while the going’s good.

Loading up for the recovery

While I wouldn’t mind being proven wrong, I certainly don’t expect Smithson’s annualised return to remain at the percentage it stood at in December. As a fuss-free way of accessing high-quality businesses from around the developed world however, it still strikes me as a perfect core holding.

I believe that good businesses tend to outlive bad ones. I also regard myself as a long-term growth investor. As such, it makes sense for me not to panic about Smithson’s sticky patch just yet.

Here, I’m going to highlight five top investment trusts I like for 2022. I’d be comfortable buying all of them for my own portfolio today.

Scottish Mortgage Investment Trust

Starting with investment trusts for growth, one of my top picks here is Scottish Mortgage Investment Trust (LSE: SMT). This is a global equity product that’s managed by Baillie Gifford. It has a phenomenal track record (its share price is up around 333% over the last five years).

There are a number of things I like about Scottish Mortgage. One is that it provides exposure to some of the world’s largest tech companies. Top holdings currently include Tesla, Tencent, and Nvidia. Another is that it provides exposure to unlisted companies, such as payments firm Stripe and tech platform ByteDance. Normally, three kinds of unlisted companies are only accessible to sophisticated investors through venture capital funds.

Now this is a higher-risk investment trust. That’s because it owns a lot of high-growth companies which aren’t yet profitable. If these kinds of companies fall out of favour in 2022, SMT could underperform. So I wouldn’t want to have too much portfolio exposure here. All things considered however, I think it’s a top investment trust for long-term growth. Fees are very low, at 0.34% per year.

Smithson Investment Trust

Another growth-focused investment trust I like is Smithson (LSE: SSON). This is a mid-cap/small-cap product that’s managed by Fundsmith. Since its launch in 2018, it has performed very well, returning 23% per year to the end of November. 

What I like about this trust is that, like its big brother Fundsmith Equity, it aims to invest in high-quality businesses that are dominant in their markets and have established excellent track records. This approach has delivered excellent returns for Fundsmith Equity over the long run and seems to be working for Smithson too.

I also like the fact it provides exposure to growth stocks that are more under the radar. Top holdings at the end of November, for example, included Rightmove, Fevertree Drinks, and Equifax.

One risk here is that the trust is quite concentrated. It only holds between 25 and 40 stocks which means that stock-specific risk could be relatively high compared to other more diversified trusts. I’m comfortable with this risk however, as I have plenty of other trusts, funds, and stocks in my portfolio. Fees here are 0.9% per year.

Allianz Technology Trust

My third pick for growth is the Allianz Technology Trust (LSE: ATT). This trust, which also has a five-star rating from Morningstar, is more niche in nature as it is focused purely on technology stocks.

One reason I like this trust is that it provides exposure to a broad mix of tech stocks. Not only does it hold the mega-cap tech giants such as Microsoft and Alphabet but it also holds smaller, up-and-coming players such as Okta and Snowflake.

I also like the fact that the trust is managed by the highly experienced AllianzGI Global Technology team, which is based in San Francisco. This location is only a stone’s throw from Silicon Valley, where many of the world’s top tech companies are based.

Of course, if technology stocks underperform in 2022, this trust is likely to underperform as well. So, I wouldn’t want to have too much portfolio exposure here. I think it could play a role in my diversified portfolio though. Fees are 0.8% per year.

Scottish American Investment Company

Turning to investment trusts for income, one of my top picks is Scottish American Investment Company (LSE: SAIN). This is a global equity product that’s also managed by Baillie Gifford. Its aim is to be a core investment for private investors seeking income. It has an excellent performance track record.

One reason I like this trust is that it has a very balanced portfolio. Unlike many other global equity trusts, it doesn’t have a huge US bias. At the end of November, around 33% of the portfolio was invested in US stocks, while 32% was invested in European stocks and 15% in Asian stocks. Top holdings at 30 November included Microsoft, Novo Nordisk, and Roche.

Now this trust doesn’t have a huge dividend yield. At present, it’s around 2.4%. However, it is a ‘Dividend Hero’, which means it has increased its dividend every year for at least 20 years.

One risk here is that the trust does hold quite a few growth stocks. This means that during market volatility, it could be more volatile than some other income-focused investment trusts. However, I see it as a good choice as part of a diversified portfolio. Ongoing charges are 0.7% per year.

Murray Income Trust 

Finally, I also like the Murray Income Trust (LSE: MUT). This is another investment trust that’s focused on income. Its goal is to provide high and growing income with some capital growth by investing predominantly in UK shares. It’s managed by Aberdeen Standard Investments.

Like Scottish American, this trust is also a dividend hero, with a great long-term dividend growth track record. In 2021, total dividends amounted to 34.50p per share, which equates to a yield of nearly 4% at the current share price. 

It’s not just the dividend track record that is impressive here however. Overall, recent returns have been very good as well. Over the five years to the end of November, MUT’s net asset value (NAV) rose 49%. By contrast, the FTSE All-Share Index returned 31% over the same period. Performance has been boosted by stocks such as Diageo, AstraZeneca, and Safestore, which are among the top holdings.

It’s worth pointing out that while this trust has an excellent long-term dividend track record, dividends are never guaranteed. It’s also worth noting that at times in the past, this trust has underperformed the market, due its focus on dividend payers. Overall however, there’s a lot to like about Murray Income Trust, in my view. Ongoing charges are 0.46% per 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.

What’s Smithson all about? 

For those unfamiliar with Smithson, it’s a FTSE 250-listed trust that’s been around since October 2018. It invests in small- and mid-cap companies from around the world, adopting an identical strategy to its stablemate Fundsmith Equity.

Like its big brother, Smithson aims to find great companies, buy them at a reasonable price, and then kick back. Sadly, such businesses are fairly rare, at least according to manager Simon Barnard. A portfolio of just 32 investments shows how selective he is.  

Unfortunately, this strategy hasn’t worked as well of late. Last week’s half-year report confirmed that Smithson Investment Trust had underperformed in the first six months of 2021. The share price total return was 4.1%. This was less than a third of that achieved by its benchmark (the MSCI World Small and Mid Cap Index). The latter rose 12.4%.

So, why am I so bullish? It’s a fair question, especially as employing an active manager also means paying fees. Here’s my reasoning.

1) Underperformance is inevitable

Just as no share price rises in a straight line, no investment strategy works every day/month/year. While tech stocks performed incredibly in 2020, we know that value plays were the winners in the early part of 2021. As vaccination programmes progress, this trend could continue into 2022. Or it may stop — we simply don’t know.

Since I can’t time the markets for toffee, it makes more sense to align myself to a strategy that I can see myself sticking to. For me, this is the quality-focused approach championed by Smithson and something I try to apply to my own stock screening. To paraphrase billionaire investor Warren Buffett, I’d prefer to snap up an awesome business at a fair price than something that just looks ‘cheap’.

2) Exposure to small-cap winners

As someone who hopefully has several decades left in the market, I want to be sure I’m backing stocks (and funds) that are capable of really growing my cash. For me, this means avoiding much of the FTSE 100 and S&P 500 and looking lower down the market spectrum.

Defintitions of ‘small-cap’ and ‘mid-cap’ vary around the world (Smithson’s average market-cap is actually £11.3bn!). Nevertheless, what’s important here is holding businesses that have a good chance of growing earnings at a faster clip than your typical market giant.

Such an approach carries risk. While some research has shown that returns from smaller stocks have been better historically, this has been at the expense of considerable volatility. That’s important to remember if we have another market wobble.

3) Track record

This last point is key. Despite recent performance, Smithson has still managed to deliver a staggering annualised return of 25.1% since inception to the end of July. The aforementioned benchmark managed ‘just’ 13%. 

Now, can Smithson sustain this sort of return over many years? I doubt it. As such, I’ve already prepared myself to expect a moderation in performance as time goes by. I’m also still sufficiently diversified elsewhere. Having conviction is one thing, but assuming that past performance must predict the future is the ultimate investing folly. 

Even so, I can’t see Smithson Investment Trust losing its top spot soon.

Aside from the valuations of holdings such as Tesla taking a (long overdue) tumble, SMT has faced another recent setback in the announcement that co-manager James Anderson will be retiring.

As a long-term investor, however, I’ve been buying more of the investment trust in May. Here’s why.

Disruption…on the cheap

While the departure of Anderson is a shame, it’s not a complete surprise. A 21 year-stint (22 by the time he actually leaves) is a long time to manage the same fund. The need for fresh blood and new investment ideas is both inevitable and healthy. Notwithstanding this, I’m reassured that Scottish Mortgage Investment Trust’s other manager, Tom Slater, is staying put. This should make the eventual succession process a lot smoother.  

SMT’s low ongoing charge (0.36%) also remains a big pull for me. This is a very cheap way of getting access to some of the most disruptive growth stocks in the world. It’s even on par with many passively-managed exchange-traded funds. Personally, I’m a big fan of having both active and passive elements to my portfolio so long as the fees charged by the latter can be justified. I don’t think this has ever been a problem when it comes to the Scottish Mortgage Investment Trust. It’s climbed 359% in value over the last five years.

Sure, there’s no guarantee that the share price won’t continue to wobble. Concerns over inflation mean that risky, ‘blue sky’ stocks might remain out of favour. Many investors will also be looking to capitalise on reopening opportunities as vaccination programmes make an impact. Previously out-of-favour sectors such airlines, pub chains and high street retailers are back on buy lists.

On this front, I’m taking a balanced approach. Some of my money is invested in stocks that I think could benefit from a return to normality. But sell my holding in a trust that could still provide great returns for many years to come? Absolutely not!

Also on my shopping list

SMT isn’t the only investment trust I’ve been buying in May. I’ve also been adding to my already-sizeable stake in Smithson Investment Trust (LSE: SSON).

Like Scottish Mortgage, Smithson’s share price has been a bit volatile in recent months. Since its aim is only to invest in high-quality small and mid-cap firms, that’s not really surprising. Most of these rarely trade on cheap valuations. One can’t ignore the possibility that some early investors may be keen to bank profits. Since launch in October 2018 to the end of April 2021, Smithson achieved a quite brilliant annualised return of 25.4%. 

This is not to say that there’s aren’t a few things to bear in mind. While the ongoing charge of 0.9% certainly isn’t the highest in the market, it’s still high. Regardless of how manager Simon Barnard performs from here, that fee will always be due. One also needs to bear in mind that relatively youthful Barnard doesn’t have a long track record. 

This, however, is a risk I’m comfortable with. With its premium to net asset value dropping in recent weeks, I’m taking advantage while I can. 

Now, this fall wasn’t a complete surprise considering that frothy tech stocks make up much of its portfolio. Nevertheless, I duly jumped at the chance to top up my holding. But the Scottish Mortgage isn’t the only investment trust I’ve been buying more of in recent weeks. 

FTSE 250 stunner 

In sharp contrast to Scottish Mortgage Investment Trust’s 112-year history, Smithson Investment Trust (LSE: SSON) is still in its infancy. Part of the Fundsmith stable, SSON has only been around since October 2018. Even so, a quick look at its performance should explain why it has already gained a market cap of £2.4bn and inclusion in the FTSE 250. 

According to its latest factsheet, Smithson has achieved an annualised return of 21.3% since inception. However, quite a bit of this stunning return can be attributed to how the trust performed last year.

Over the course of 2020, the share price increased by 31.7%. For comparison, Smithson’s benchmark — the MSCI World Small and Mid Cap Index rose by 12.2%. Even more startling was that cash climbed just 0.3% in value — further evidence that holding anything in cash beyond a ‘rainy day’ fund will never make me rich. 

This result is yet another ‘win’ for Terry Smith. The strategy adopted by Smithson is identical to that of his much-larger Fundsmith Equity Fund, even though he’s not involved in the day-to-day running of the former. In other words, it buys quality companies at good prices and then does nothing. In practice, this means having exposure to UK firms such as Fevertree, Domino’s Pizza and Rightmove. US-listed consumer credit business Equifax and laser-specialist IPG Photonics also make the cut. 

But can this form continue?

In the near term, it’s impossible to say and that’s a risk for buyers of this trust. Just like individual company stocks, the performance of investment trusts can vary wildly from year to year. Indeed, manager Simon Barnard has already sought to quell expectations by suggesting that 2020’s performance will likely prove an anomaly.

This seems very sensible to me. After all, almost half of Smithson’s portfolio is made up of technology stocks and that means volatility. As anyone with an interest in the stock market will probably be aware, these aren’t the flavour of the month at the moment. Thanks to the gradual rollout of coronavirus vaccines, it’s beaten-down leisure and travel stocks that are now attracting more attention.

Then again, SSON’s share price has held up far better than that of Scottish Mortgage Investment Trust. At the close of play last Friday, the former was only 5% below where it stood at the start of the year.

Sure, a lot of this may be down to Smithson being geared towards investing in small and mid-cap companies. Unlike Scottish Mortgage, it has no interest in the likes of Tesla and Amazon. Nonetheless, I think this relative stability bodes well, especially for those investors who don’t want to spend too much time nursing their portfolio.

With a proven investment approach and a relatively young management team, I’m backing Smithson for the long term.