2 investment trusts I’d buy for my ISA or SIPP today

Here’s why I rate investment trusts as among the best investments you can make in today’s markets.

| 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.

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.

People often tell me they’re not confident enough to buy their own shares, but they don’t trust fund managers who they see as only out to line their own pockets. While that latter sentiment is not necessarily accurate, it is common, and it’s perhaps understandable.

My solution, as always, is to go for either an index tracker or look towards investment trusts. With an investment trust, we investors actually own the company, making the pockets that the company is trying to line our own. Today I’m looking at two trusts with different but complementary approaches.

Small is beautiful?

Strategic Equity Capital (LSE: SEC) is one of the smaller trusts with a market cap of £140m, and its aim is net asset value (NAV) appreciation.

Wednesday’s full-year results showed a 2.2% rise in NAV, against an 8.6% fall for the FTSE Small Cap ex Investment Trusts Total Return Index. In a tough year, I see that as a commendable performance.

Pointing out fears that the Trump-China trade war might escalate, and the UK’s Brexit effects linger, chairman Richard Hills makes what I think is an apt comment: “The whole UK stock market, on a global basis, is now generally considered to be cheap while simultaneously ‘uninvestable’ given the uncertain backdrop.”

While the trust has its focus on capital appreciation, rules that prohibit investment trusts from retaining any more than 15% of their income in any financial year mean a dividend has to be paid. At 1.5p per share, it amounts to a yield of only around 0.7%, but it’s of no real importance.

Investment trust shares typically trade at a discount to NAV, and for Strategic Equity Capital that’s averaged 15.2% over the past 12 months, which hints at undervaluation to me. The board thinks so too, and has invested £6.9m in buying back its own shares at an average discount of 15.9%.

I reckon we have a well-managed investment trust here, and I think the shares are a buy.

Big is better?

My second pick today is at the other end of the scale, in terms of size and strategy. A FTSE 250 company valued at £1.63bn, City of London Investment Trust (LSE: CTY) is a veritable dividend champion.

In March this year, the Association of Investment Companies named City of London as its top dividend hero. Heading a list of 20 trusts that had lifted their dividends for at least 20 years in a row, City of London had achieved that feat for 52 consecutive years.

And it went one further for the year ending June 2019, with a 5% hike in its annual payments to 18.6p per share. At the time, that provided a 4.4% yield. So we’re looking at inflation-beating rises, a very long track record of increases, and a strong yield. On its own, that looks like a good reason to invest, but from where is the trust generating the cash?

The company goes for dividend-paying UK equities, which I think is the perfect strategy for someone seeking dependable retirement income. Its portfolio holds some of our dividend giants, including Shell, HSBC, BP, Diageo, Unilever.

If you think a UK-centric approach is risky right now, every one of those companies is a big global player and has little real dependence on the UK economy. City of London is also on my investment shortlist.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo and HSBC Holdings. 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

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »

Close-up of British bank notes
Investing Articles

These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

I bought 49 Unilever shares in June. Here’s what they’re worth today

Harvey Jones bought a modest amount of Unilever shares last summer hoping the stock would soon recover. He's having to…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

I reckon these shares, potentially 20% undervalued, are Warren Buffett’s type of investment

Oliver Rodzianko thinks Games Workshop is an absolutely stellar investment. As it's potentially undervalued, he reckons Warren Buffett would agree.

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Great investing habits that can boost my Stocks and Shares ISA

Forget complicated calculations and financial jargon! Our writer uses a few simple habits to build wealth inside his Stocks and…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Why has the St. James’s Place share price crashed 30%, after FY results?

The St. James's Place share price has just fallen off a cliff. What could have gone wrong in 2023 that's…

Read more »

Family in protective face masks in airport
Investing Articles

Here’s how much I’d have if I’d bought 1,000 Rolls-Royce shares 10 years ago

Rolls-Royce shares may be flying high this year but that wasn't always the case. I'm calculating how much I'd have…

Read more »