I’ve been buying investment trusts for my portfolio recently. I think these can be a great way to invest in the stock market, thanks to the diversification offered.
Investment trusts usually own portfolios of stocks managed by professional investment managers. Not only does this approach provide diversification, but it’s also a good approach for income investors.
Trusts have to distribute most of their income to investors with dividends every year. However, they can hold back 25%. Managers can then use this reserve to cover distributions if the income from their investment portfolio falls.
This was particularly useful last year. As companies across the market slashed their payouts, investment trusts dug into reserves to maintain dividends.
Considering these qualities, there are two income trusts I’d buy for my portfolio today.
Investment trusts for income
The first company on my list is the Schroder Income Growth Fund (LSE: SCF). With a dividend yield of 4.1%, at the time of writing, the trust offers a market-beating level of income.
It seeks to invest in companies that can provide a steady stream of income as well as capital growth. The largest holding in its portfolio is pharmaceutical group AstraZeneca. As well as a selection of blue-chips, managers have also acquired several mid-cap stocks including Pets At Home. There are also income and growth stocks such as Burberry.
This approach could be risky because it involves trying to pick growth stocks. Growth stocks are likely to be more volatile than income investments. Therefore, Schroders’ offering may not be suitable for all investors.
Still, I like the combination of income and the potential for capital growth offered by the trust. That’s why I’d buy the shares for my portfolio today as an income and growth investment.
International investing
As well as the Schroder, I’d also buy Troy Income & Growth (LSE: TIGT). Some investors might think that just because both of these investment trusts have the words income and growth in the title, they follow the same strategy. That’s not the case. There’s some overlap in the portfolios, but not much.
The biggest difference is the fact that nearly a fifth of Troy’s portfolio is allocated to US securities. This gives the trust a level of diversification. It also has less exposure to resource stocks, which some investors may be more comfortable with. The Schroder fund’s second-largest holding is Rio Tinto. Troy’s is Unilever.
That said, some investors may not be comfortable with a trust investing overseas. It also targets growth companies over income investments, so dividend yield is lower than the trust above. Troy’s offering currently supports a dividend yield of 3.6%.
Despite these risks, I’d buy Troy alongside Schroder in my portfolio for a blend of international and domestic growth as well as income from these two investment trusts.
