Investment trusts have been around in one form or another for more than 100 years and there’s a good reason why these instruments continue to survive today.
They offer investors exposure to all different types of assets, from property to airplane leases, and are managed by experienced professionals. With such an eclectic range of assets on offer, they are great tools to use to diversify your portfolio.
Profit through diversification
The Henderson Alternative Strategies Trust (LSE: HAST) is a great example. This company has a broad investment mandate and aims to exploit “global opportunities not normally readily accessible in one vehicle” with the goal of constructing a “diversified, international, multi-strategy portfolio which also offers access to specialist funds including hedge and private equity.“
Henderson’s broad mandate means that the instrument offers excellent diversification away from traditional stocks. Over the past five years, shares in the trust have outperformed the broader market returning 29.6% compared to the FTSE 100’s return of 27% excluding dividends.
According to the latest set of figures from the company, net asset value per share increased by 10.8% for the year to 30 September to 335.4p. So, based on these numbers, at the time of writing the shares are trading at a discount to NAV of 12%.
As well as managing a well-diversified portfolio, management is also committed to returning cash to investors. At the beginning of the year, it initiated a tender offer to acquire 10% of the trust’s outstanding shares — the second such tender in three years. Also, the company increased its regular dividend by 25% to 4.75p alongside full-year figures, giving a yield of 1.3%.
Overall, if you’re looking to add some diversification to your portfolio for the next 10 years, Henderson could be the right option for you.
Top small-cap picks
Another trust you might regret not buying 10 years from now is the Rights & Issues Investment Trust (LSE: RIII).
It invests in UK small-caps. Over the past year, as small-caps have rallied, shares in the trust have gained 24%. The portfolio is dominated by three top holdings, RPC Group, Treatt, and Scapa Group, which together account for just over 40% of the portfolio. This concentration might put off some investors, but over the past few years, all three of these companies have powered ahead, and it looks as if management has made the right decision betting on their success.
Growing with the business
Going forward, it looks as if it will make an excellent holding for your portfolio. Shares in the trust are currently trading at a discount to NAV of 12.6% (NAV 2,424p), and management is working to reduce this discount via a share buyback. For the six months to the end of June, Rights & Issues had spent £5.9m to acquire 4% of its outstanding shares. As well as the buyback, management is returning cash via the dividend. Based on last year’s numbers, the shares support a dividend yield of around 2.4%.
All in all, if you’re looking for an investment trust that’s not afraid to take big bets on exciting small-caps, Rights & Issues might be for you.
