Investment trusts are popular with investors as they provide an easy way to get diversified exposure to lots of different companies or other assets through a single product.
The most popular trusts on AJ Bell Youinvest’s platform in February 2017 were Scottish Mortgage (SMT), LXI REIT (LXI), City of London (CTY), Temple Bar (TMPL) and Finsbury Growth & Income (FGT).
In this article, we explain why these trusts are appealing and what strategies they use to boost returns.
BLUE-CHIP INVESTMENT TRUST
We are not surprised that Scottish Mortgage, worth £4.7bn, is in demand as it was promoted to the FTSE 100 on Wednesday. It is a rare achievement for an investment trust and one we predicted earlier in February.
It has stakes in some of the biggest and most innovative stocks worldwide, such as online delivery giant Amazon and social media site Facebook.
Scottish Mortgage has achieved a 14.9% annualised total return over the last 10 years.
PROTECTION AGAINST INFLATION
LXI raised £138.1m out of its target of £200m to invest in commercial properties when it floated on the stock market on 23 February.
The trust aims to deliver inflation-protected income and capital growth over the medium term, which is ideal if investors want to avoid the highest rate of inflation in the UK since July 2014. It is targeting a yield of at least 5% a year.
Since the trust is new to the market, there is no past performance of returns yet.
RELIABLE DIVIDENDS
Income hunters are keen to invest in City of London, which Shares wrote about in October, highlighting 50 years of consecutive growth.
Its top 10 holdings include FTSE giants Royal Dutch Shell (RDSB) and British American Tobacco (BATS), as well as high street banks Lloyds (LLOY) and HSBC (HSBA) for when interest rates rebound.
City of London aims to grow capital over time using a cautious approach and a diversified portfolio.
The investment trust has achieved 8.2% annualised total return over the past decade.
CONTRARIAN APPROACH
Temple Bar portfolio manager Alastair Mundy works against the ‘herd mentality’ of investing by buying firms in the FTSE 350 index that have dropped by 50% from their peak performance but have strong balance sheets.
Companies have approximately four or five years to improve, and are removed if they fail.
In a time of economic and political instability, it seems the market is more inclined to take bigger risks as this was the fourth most popular trust over the last month on Youinvest’s platform.
Top holdings include banks HSBC, Barclays (BARC), Lloyds and Royal Bank of Scotland (RBS) so ensure you are confident that this sector can return to form before investing.
Temple Bar has delivered 8.9% annualised total return over 10 years.
BRAND BOOST
Finsbury Growth & Income has delivered 11.3% annualised total return over the past decade.
The market is drawn to household names as the trust includes Johnny Walker maker Diageo (DGE), Ben & Jerry’s supplier Unilever (ULVR), beer brewer Heineken and Toblerone maker Mondelez (MDLZ) in its portfolio.
Clearly, Finsbury believes these household names will keep delivering and hold off competition from cheaper own-store brands.
We’ve used Morningstar data for all the performance figures in this article.
