Investment trusts can be an excellent way of adding diversification to a portfolio. However, for those looking for strong long-term returns, I believe it’s worth looking outside mainstream FTSE 100-focused investment trusts, and instead focusing on niche sectors that have greater potential for growth. Here’s a look at two growth-oriented investment trusts that I would consider buying for my pension.
Templeton Emerging Markets Investment Trust
The emerging markets offer exciting investment opportunities for long-term investors, in my opinion. Many emerging countries such as China, India and Taiwan are growing considerably faster than most developed countries, and as a result, over the long term, this growth should translate into powerful investment returns.
After a few poor years of returns between 2013-15, the sector appears to be on the up again, with the MSCI Emerging Markets USD Index returning 11% last year, and 28% this year up to the end of August. Investment trusts such as the Templeton Emerging Markets Investment Trust (LSE: TEM) are an effective way of gaining exposure to the asset class.
Established in 1989, this trust’s objective is to provide long-term capital appreciation by investing in companies listed in emerging markets or that are listed in developed countries yet have significant operations in emerging markets. The trust’s NAV increased 125% for the 10-year period to the end of August. Ongoing charges are 1.12%.
Portfolio manager Carlos Hardenberg is particularly bullish about IT stocks in countries such as Taiwan and South Korea at present, stating that many of the companies that develop sensors and cameras for self-driving cars are based in these regions, and trading at attractive valuations.
At the end of August, the portfolio had the largest exposure to Hong Kong/China, South Korea and Taiwan, with the three top sectors being IT, financials and consumer discretionary. The top 10 holdings at the end of the month were:
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Source: temit.co.uk
Emerging markets can be volatile, and therefore are most likely not suitable for risk-averse investors. However, for risk-tolerant investors, the Templeton Emerging Markets Investment trust could be a good way of gaining exposure to the asset class.
Polar Capital Technology Trust
Another trust with strong growth potential, in my opinion, is the Polar Capital Technology Trust (LSE: PCT). This one aims to generate long-term capital growth by investing in a diversified portfolio of technology companies across the world.
Technology is changing the world at a rapid rate right now, led by innovative companies such as Apple, Google and Amazon.com, and the Polar Capital Technology Trust looks to be an excellent vehicle for gaining exposure to such companies. The trust’s NAV has increased 173% in the last five years alone.
At the end of August, its top 10 holdings were:
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Source: polarcapitaltechnologytrust.co.uk
With ongoing charges of a reasonable 1.16%, this trust looks to be an excellent way for UK investors to gain exposure to some of the world’s best technology companies.
