Jackpot!

If you had invested each year’s maximum ISA limit in the top performing investment trust Aberdeen New Thai (LSE: ANW) from 1999 to 2018, you would now have a cool million (and a bit). You would have invested £206,560 in total, and the trust would have turned into a staggering £1,070,583.

No investment trust has done it better over the period, although others have given it a go. Scottish Oriental Smaller Companies (LSE: SST) would have turned the same money into £956,981. Not quite a million, although I doubt investors will be complaining.

Hindsight millionaires

Past performance figures are slippery things. Everybody would be a multi-millionaire if they had the benefit of perfect hindsight, but none of us do. However, these figures still show how your wealth can grow, if invested wisely for the long term.

So should you buy Aberdeen New Thai today? As you can imagine with a country-specific fund like this, it comes down to how well you expect the Thai economy to perform. You won’t be surprised to hear that it has been volatile. Twenty years ago Thailand was still reeling from an economic boom that had ended in bust during the 1997 Asian crisis.

Thai trap

This left it with large account deficit, exhausted foreign currency reserves, a slumping currency and inflation of 10%. As so often happens, the perfect time to invest was immediately after a meltdown, when assets could be picked up cheaply.

Today, Thailand generates two thirds of its GDP from exports and this is a worry with the global economy on the brink of recession. If regional powerhouse China slumps, Aberdeen New Thai could follow. Thailand is still battling to escape the middle income trap, which won’t be easy with half the workforce employed in agriculture, while the country is also ageing. You might want to invest a small corner of your portfolio, but not enough to make you a million.

The Scottish play

Scottish Oriental Smaller Companies invests mainly in smaller quoted companies in Asia, which includes the Indian subcontinent but excludes Japan and Australasia. I should declare an interest here, I bought it around 15 years ago. Sadly, I was a newbie investor then and only invested £1,803, so although it has grown 214% since then, my £5,661 holding is well short of a million. Dream meets reality, again.

Sadly, while strong over 20 years, it hasn’t been such a good hold for the last five, during which time it grew just 35%, less than half the 80% growth of its Asia-Pacific benchmark. That makes the fund hard to recommend for new investors. In fact I’m wondering whether to sell.

Don’t despair, because there are plenty of promising investment trusts out there. Here are 2 income investment trusts to consider. While these two could form the basis of a good starter portfolio. There is more than one way to crack that million.

Investing overseas, outside of your home market, is essential if you want to achieve the best returns as it allows you to benefit from growth in faster-growing economies such as China, India or regions such as South America. 

However, it can be daunting and complicated, so it’s best left to the experts. Luckily, there are plenty of highly experienced overseas investment managers out there who have a record of outperformance. 

Asian exposure 

The Scottish Oriental Smaller Co‘s (LSE: SST) investment trust, is a perfect example of the benefits of investing overseas. The investment objective of the company is to achieve capital growth by investing mainly in smaller Asian quoted companies. The investment firm invests in China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam. So, if you’re looking for a bet on Asia’s economic growth, Scottish Oriental ticks most of the boxes. 

During the past 10 years, the fund has produced a return of 230% for investors excluding dividends. Over the same period, the FTSE 100 and FTSE 250 have returned 13% and 76% respectively. 

Asia’s economic growth is only just getting started, and the region is still relatively underdeveloped. As growth continues, small companies will profit, and Scottish Oriental should continue to produce returns for investors. Right now, shares in the firm are trading at 1,050p compared to a net asset value per share of 1,203p, a discount of 12.7%. 

Diversified income 

As Scottish Oriental tries to profit from smaller companies, City of London Investment Trust (LSE: CITY) is focused on generating income here in the UK but also has some global exposure. 

City of London is primarily a UK income trust. It has matched its benchmark, the UK Equity Income index, over the past five years, and currently yields 3.95%. 

Most importantly, this trust is cheap for investors to own. Total annual operating charges are 0.42%. For some comparison, Neil Woodford’s flagship equity income fund charges 0.75% and yields only 3.5%. 

So, if you’re looking for a cheap, diversified income buy, then I don’t think you can go wrong with City of London. Shares in the trust trade at around net asset value, which was last reported at 422p per share. 

Interestingly, while 90% of the fund’s assets are devoted to UK equities, notably FTSE 100 dividend champions, around 10% of the portfolio is invested overseas. As well as the UK the fund is invested in the US, Netherlands, Germany, and Hong Kong so there is some international diversification here. 

The bottom line 

Overall, both the Scottish Oriental and City of London funds look to me to be good investments for different reasons. Scottish Oriental offers exposure to a fast-growing region of the world with a proven management team. Meanwhile, City of London provides a diversified income stream at a low cost.