Investment trusts are the great unsung heroes of the investment world, with even the biggest and best failing to register on people’s radars. These two have multiplied the return on the FTSE 100 in the past five years, and it’s time you heard about them.
Or maybe I am doing you a disservice and you have taken note of Monks Investment Trust (LSE: MNKS) and Scottish Mortgage Investment Trust (LSE: SMT). They have been around a long enough to grab your attention, having been launched in 1929 and 1909 respectively.
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They are big enough as well, with Monks managing £1.77bn of money, while Scottish Mortgage is in charge of a handsome £7.72bn. Investment trusts are companies listed on the stock market, which can be traded easily like shares, and its size makes Scottish Mortgage a constituent of the FTSE 100. Another reason why you may just have heard of it.
And here’s another. Both have thrashed the FTSE 100 lately. Monks has returned 121% in total over the last five years, while Scottish Mortgage delivered a whopping 205%, according to Trustnet.com. By comparison, the average fund in their benchmark sector, global investment trusts, is up 93%, while the HSBC FTSE 100 Index tracker fund returned just 33%.
This does not mean they will always top the ailing FTSE 100. The two funds have hefty exposure to North American equities, almost half the portfolio in both cases, which means they have benefited from US outperformance. However, the US is starting to look expensive, and if it fell then both of these funds would suffer.
You should certainly bear that in mind before investing in either, and also look at your existing portfolio to see how much exposure you already have to the US, and how much more you want – if any.
These are also global funds, so Monks holds around 19% in emerging market equities, 16% in Europe, 8% in Japan, 6% in the UK and 3% in Asia-Pacific. Scottish Mortgage invests 25% in the eurozone and Europe, along with 22% China exposure, plus a bit of UK and India. Again, check carefully to see how this would slot in alongside your existing holdings.
It is also worth casting an eye over the funds’ top 10 holdings: Amazon is number one in both, while Alibaba also features. You may recognise Prudential, Google owner Alphabet and Taiwan Semiconductor Manufacturing, which all feature in the Monks, while Scottish Mortgage includes Tencent Holdings and Netflix, as well as a 4.9% stake in Tesla, which may concern you given recent events.
A key attraction of investment trusts is that they have much lower fees than more heavily marketed and popular unit trust funds. For example, Monks has an ongoing charges figure of just 0.52% a year, which falls to just 0.37% with Scottish Mortgage. The lower the charges, the more growth you keep for yourself.
These are not for income seekers, with dividend yields of just 0.17% and 0.58% respectively. At retirement you might want to switch your money into low-risk dividend paying investment trusts like the two discussed in another report. Hopefully, you will have a lot of money to switch by then.