2 top-performing investment trusts for growth and income

These growth and income investment trusts offer market-beating dividend yields.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Smaller companies

For investors looking for growth and income from smaller companies, I reckon the Acorn Income Fund (LSE: AIF) deserves a closer look. The fund is a standout performer in the UK small-cap space, boasting some of the best figures across the board.

An investor who had bought shares in the investment trust five years ago would have earned a total return of 176%, a significantly better performance than the FTSE SmallCap (excluding investment companies) benchmark’s total return of 112%.

The Acorn Income Fund invests 70-80% of its overall portfolio in UK-listed smaller companies, with the remainder in fixed interest securities. Equity fund managers Simon Moon and Fraser Mackersie use a bottom-up investing approach, picking companies with experienced and well motivated management, good cash generation, and growing dividends.

Top holdings in the smaller companies portion of the portfolio include Convivality (4.2%), Acal (3.7%), Clipper Logistics Group (3.7%), FDM (3.1%) and Somero Enterprises (3.0%).

Reduce capital risk

The inclusion of bonds in the fund helps to add income and reduce downside risk in an otherwise risky basket of small-cap stocks. Paul Smith, who manages the income portion of the portfolio, invests mainly in short-to-medium duration securities, which reflects his concerns on tightening monetary policy. He also hedges against potentially rising rates by holding short positions in government bond futures to reduce the average duration of the portfolio.

The Acorn Income Fund is attractively valued on its current discount of 6% on net asset value, which means investors can effectively purchase shares for less than the sum of its parts. Additionally, with its yield of 4.1%, the fund is also one of the most attractive from an income standpoint.

Biotech stocks

Biotech stocks have been one of the hottest investment areas in recent years as promising new drug developments and robust earnings growth lure investors to the sector. With this in mind, the International Biotechnology Trust (LSE: IBT) is a solid pick for investors expecting further significant gains.

The fund has been run by lead manager Carl Harald Janson since September 2013, who has 13 years’ experience in healthcare investing and a further seven years’ experience within the pharmaceuticals industry. Janson reckons there are still good opportunities from mega-cap firms due to their lower-than-market p/e valuations and robust top-line growth. What’s more, he also looks for smaller companies that are potential takeover targets, as he reckons the market is still ripe for M&A.

As expected, US large-caps dominate its portfolio, including Gilead (7.8%), Celgene (7.7%), Regeneron (6.5%), Biogen (5.9%), and Vertex (4.5%) – its five biggest positions. North American stocks account for roughly 85% of its portfolio, while European- and UK-listed firms account for the remainder. Its two biggest European positions are Shire (3.2%) and Denmark’s Genmab (3.0%).

Performance figures for the past five years show the trust earning a total return of 190%, beating its larger rival The Biotech Growth Trust, which gained 180% over the same period. And in contrast to its rival, which doesn’t pay any dividends, the International Biotechnology Trust has a dividend yield of 3.8%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

UK money in a Jar on a background
Investing Articles

With a 10.1% yield, should I buy this FTSE 250 income stock?

Our writer looks at an income stock that’s kept its dividend unchanged for five years. But is it high enough…

Read more »

Investing Articles

Up 23% in a month, can this FTSE 100 stock continue to soar?

Airtel Africa's recently been the FTSE 100’s top-performing stock. With huge opportunities for growth ahead, is it set to continue?

Read more »

Investing Articles

£20,000 in savings? Here’s how an investor could use it to target an eventual £980 of passive income each month

Our writer demonstrates how an investor could aim to earn close to £1,000 each month in passive income from a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

£10,000 invested in the S&P 500 at the start of 2025 is now worth…

Since the start of the year, the S&P 500's underperformed the FTSE 100. And Stephen Wright thinks investing in the…

Read more »

Investing Articles

Is this a turning point for the Diageo share price?

The Diageo share price is at an eight-year low. Is this FTSE 100 favourite simply too cheap to ignore? Roland…

Read more »

Investing Articles

As the FTSE 100 hits record highs, should I sell my shares and buy an index fund?

Our writer’s portfolio lagged the FTSE 100 last year, but he’s not giving up on stock-picking and highlights a recent…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Lloyds shares 6 months ago is now worth…

Lloyds shares have performed well over 12 months but have broadly disappointed investors over the long run. Dr James Fox…

Read more »

Investing Articles

£20,000 in savings? Here’s how investors can aim for a £4,000 monthly second income

Millions of investors use the Stocks and Shares ISA as a vehicle to build wealth and generate a second income.…

Read more »