With the new tax year under way, you may be looking at different options on where to invest your capital. There are many types of investments that can be made in the stock market, and one option that is often neglected by investors are investment trusts.
As collective investment vehicles, they enable people to pool their money together to get exposure to many different companies through a single investment. But unlike unit trusts and Open-Ended Investment Companies (OEICs), investment trusts are listed companies with shares that trade on the London Stock Exchange.
Long-term growth potential
One top performer that may be worth a closer look is the Edinburgh Worldwide Investment Trust (LSE: EDI). The fund has a global investment remit and primarily looks at small and mid-cap firms which are believed to offer long-term growth potential.
The fund does not seek to track any particular index, although it does compare its performance against the S&P Global Small Cap Index. Over the past three years, Edinburgh Worldwide has handsomely outperformed its comparative index, with a total return of 55% compared to the benchmark’s gain of 39%.
Douglas Brodie, its portfolio manager since 2014, seeks out dynamic growth businesses that are shaping tomorrow’s world. He has a preference for immature entrepreneurial companies that have the potential to grow to become many times their current size.
A look at the portfolio shows the fund is heavily weighted towards North America, which accounts for 56% of its total assets. Its five biggest holdings are MarketAxess Holdings (6.2%), Alnylam Pharmaceuticals (5.0%), LendingTree (4.8%), IPG Photonics Corp (2.9%) and Ocado Group (2.6%).
There’s one major downside to investing in the fund right now. The trust is in high demand, causing its shares to currently trade at a 3% premium to its net asset value (NAV).
Technology stocks
In the sector-specific space, I reckon the Allianz Technology Trust (LSE: ATT) is a solid pick for investors who are optimistic about the technology sector in general.
Technology stocks have been on a tear over the past few years, but in recent weeks, they’ve hit a snag and have been underperforming the broader equity markets amid growing regulatory concerns and rising fears of protectionism.
Still, some analysts sense a buying opportunity. As earnings growth in the tech sector is expected to continue to outpace other sectors in the coming years, the party may not be over for tech stocks. Despite potential headwinds, the long-term fundamental drivers for the sector remain intact as technology megatrends continues to disrupt the traditional business landscape.
UK investors
And given the very low number of technology companies listed on the London Stock Exchange, the technology fund is particularly useful for UK investors who seek greater exposure to the sector but don’t want to directly invest in foreign technology stocks.
It’s probably not a good idea to invest in this fund on its own though, because of the sector-specific risks which could cause many stocks within the same sector to fall in price at the same time.
As expected, North American stocks dominate its portfolio, accounting for 89% of its total assets. Top holdings include some well-recognised brands and other exciting names, such as Amazon (7.3%), Microsoft (4.6%), ServiceNow (4.1%), Netflix (3.4%) and Square (3.2%).
