Have £1,000 to invest? These investment trusts are absolutely crushing the FTSE 100

These top-performing investment trusts have achieved more than four times the FTSE 100’s (INDEXFTSE: UKX) total return over the past five years.

| 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.

Fund managers are often criticised for charging high fees yet also failing to deliver market-beating returns. But while many actively managed funds trail the market, there are few out there that have deservedly earned their fees after having massively outperformed the market over extended periods of time.

Multi-asset

One such fund is the Lindsell Train Investment Trust (LSE: LTI). Shares in the multi-asset investment trust have delivered a total return of 233% over the past five years, allowing it to easily surpass the performance of its benchmark MSCI World Index, which gained just 76% in sterling terms. The FTSE 100 has fared even worse, with a total return of just 40% over the same period.

This one seeks to maximise long-term total returns by investing in a diversified portfolio of financial assets, including equities, and other Lindsell Train funds. But what really sets this trust apart from others is that it also owns a significant minority stake in its investment manager, Lindsell Train Limited.

This 24% stake in the investment management company co-founded by Michael Lindsell and Nick Train accounts for 43% of the value of its portfolio. However, with such a large position in a single unquoted investment, those who invest in the trust are highly exposed to fluctuations in the valuation of that single company. And although its position in Lindsell Train Limited has no doubt played a big role in the fund’s recent outperformance, past performance may not be indicative of future returns.

One important reason to be cautious is the high premium at which its shares trade against the underlying value of its assets. Shares in the trust are among the most expensive in the investment trust market — currently trading at a 41% premium to its net asset value (NAV), which is considerably higher than its 12-month average premium of 26%.

Although this reflects strong investor sentiment towards the fund, due to faith in management’s ability to outperform the market, the risk of losing money should the trust fall out of favour is greatly amplified.

Japan smaller companies

Baillie Gifford Shin Nippon (LSE: BGS) is another fund that has massively outperformed the FTSE 100. It aims to deliver attractive long-term capital growth by investing in value stocks in Japan’s small-cap space.

Shin Nippon, which means ‘new Japan’ in Japanese, has achieved this outperformance by focusing on fast-growing Japanese companies with innovative business models and dynamic management teams. The trust has a fantastic stock picking track record, and has achieved a five-year total return on 216%.

Its job has been made easier by the fact that many smaller Japanese companies have no broker coverage at all. This limited availability of sell-side coverage provides inefficiently priced opportunities which may be uncovered by the fund’s in-house research team.

GBP/JPY

Of course, the yen’s strength against the pound (or more correctly, sterling’s weakness) has also been an important contributor to the fund’s performance — but that doesn’t explain it all. This is because the trust has also significantly exceeded the gain of its benchmark, the MSCI Japan Small Cap Index, which achieved a return of 98% in sterling terms over the same period.

Shares in the trust trade at a 6% premium to NAV, which seems reasonable, being in line with its 12-month average premium of 5%.

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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »