Investment trusts can be a great way to get diversified exposure to the stock market at a low cost. They can also be a great way to gain exposure to niche areas of the market.
Personally, I hold a number of investment trusts within my stock portfolio. Here’s a look at two I plan to add to in the near future while the stock market is depressed.
Scottish Mortgage Investment Trust
One trust I hold in high regard is Scottish Mortgage Investment Trust (LSE: SMT). This is a global equity product (it has nothing to do with Scottish mortgages) that’s managed by a team of top stock pickers at investment management firm Baillie Gifford.
What I like about SMT is its strong focus on technology. More specifically, there’s a focus on innovative tech companies that are disrupting established business practices. We don’t have a lot of these types of companies here in the UK (the FTSE 100 barely has any technology), so this trust provides investors with something different. Top holdings at the end of February were Tesla, Amazon, Alibaba, Tencent, and Illumina.
Performance here in recent years has been very good. For the five years to the end of February, the trust’s NAV rose 144% versus 63% for its benchmark, the FTSE All World Index (GBP). I’ll also point out the trust has held up very well in the recent stock market crash. Currently, its share price is at the same level as it was three months ago. By contrast, the FTSE 100 index is down 25% over the same period.
Overall, there’s a lot I like about Scottish Mortgage. With a low annual fee of just 0.37%, I think it’s a great trust to own for technology exposure.
Smithson Investment Trust
Another investment trust I’m planning to add to in the near future is Smithson (LSE: SSON). This is a global equity product offered by the team at Fundsmith. Launched in 2018, it has performed very well so far.
What I like about this particular trust is that it has a focus on small- and mid-sized companies (by global standards). This means, again, it can provide UK investors with something a little bit different. You’re not going to find S&P 500 giants like Apple and Amazon in this trust. Instead, the top five holdings at the end of February were Verisk Analytics, Rightmove, Equifax, Masimo, and Check Point.
Another reason I like Smithson is that, like its big brother Fundsmith Equity, there’s a strong focus on high-quality companies with financial strength and superior operating numbers. This approach should pay off in the current environment. Additionally, the team at Fundsmith are long-term investors, which I see as another plus.
Between its inception in October 2018 and the end of February 2020, Smithson’s NAV rose 19.9%. By contrast, its benchmark, the MSCI World SMID Index, rose just 3.4%. That’s a decent outperformance. Annual charges are not the lowest around, at 0.90%, but I believe the fee is worth it.
Overall, I see SSON as a great choice for risk-tolerant investors.
