Investment trust sales have hit a record high, attracting more than £500m in the first half of this year, up 75% in just 12 months, according to the Association of Investment Companies. Those figures only apply to financial adviser purchases, private investors are also pouring in, and with good reason, because there is a wealth of high-performing, low-charging investment trusts to choose from. Here are two of my favourites.
The Mercantile Investment Trust (LSE: MRC) reported its results for the six months to 31 July today and gladdened loyal investors with a 16.2% return on net assets, beating 10.7% on the company’s benchmark index. The return to shareholders was 14.5%, as the discount at which the shares trade widened slightly over the half year. It also paid a total dividend of 21p, up from 20.5p in 2016.
Mercantile is managed by JP Morgan and aims to achieve capital growth through a portfolio of UK medium and small company stocks. Long-term performance has been solid, it has returned 120% over the past five years, according to figures from Trustnet.com, and 23% over 12 months. Gearing is relatively modest at 3%.
Cheap and cheerful
Management invests across a spread of sectors but with a tilt towards financial services, where its position in private equity investor 3i performed notably well. It wisely minimised its exposure to the troubled oil services sector. There is plenty of concern about the state of the UK economy but the trust’s joint managers remain relatively positive. “The economy is proving to be more resilient than had been expected and monetary policy has been accommodating. These factors combined should provide a positive backdrop for equities.”
Mercantile, which now manages a hefty £1.66bn, currently trades at a discount of 9.86%, which I find reassuring as I dislike buying trusts at a premium to net asset value. Ongoing fund charges total just 0.5% a year, and the current yield is 2.32%. Investing in this trust could prove good business.
Standard Life UK Smaller Companies Trust (LSE: SLS) is another long-standing investor favourite, and this £310m investment trust has also performed smartly, returning 29% over 12 months, and 115% over five years. That comes as no surprise when you discover it is run by smaller companies whizz Harry Nimmo, who was renowned when I first started writing about investment trusts 15 years ago, and has been running this one since 2003.
Nimmo’s biggest holding right now is Foolish favourite Fevertree Drinks, which makes up 5% of his portfolio, and has more than justified its place with its fizzy recent performance. Some 10% of the portfolio is invested in the FTSE 250, with the remainder split between the Numis Smaller Companies index and AIM. The yield is just 1.48%, more than you might expect on a smaller companies fund, but charges are higher than on Mercantile, with a total expense ratio of 1.17% a year. So far, Nimmo has been worth the money.
The trust trades at a discount of -5.43% to net asset value. Personally, I wouldn’t have been surprised if it traded at a premium, given Nimmo’s reputation. If buying individual smaller companies stocks is too risky for you, either of these trusts could do the job very nicely on your behalf. Small is beautiful