Investment trusts can be a great way to gain exposure to specific areas such as income, growth, or overseas companies. The two trusts I’m going to look at today cover all of these sectors.
There’s no way I could do all of the research needed to build both of these portfolios. By enlisting expert help, I can get exposure to areas that would otherwise be out of my reach.
Scottish Mortgage Investment Trust: growth experts
The Scottish Mortgage Investment Trust (LSE: SMT) specialises in finding growth businesses with the potential to disrupt markets. Big successes in recent years have included Tesla, Amazon, Chinese e-commerce giant Tencent and Covid-19 vaccine producer Moderna — the pharma firm was SMT’s second-largest position at the end of June.
Scottish Mortgage’s distinctive long-term approach has delivered impressive results over the years. The trust’s stock has risen by 50% over the last year and by 335% over the last five years.
SMT’s success means it’s now a FTSE 100 company with about £20bn of assets under management. I can see some risk that the group’s large size could make it harder to maintain rapid growth. However, I don’t see this as a big worry at this time.
In my view, a bigger concern is that the trust’s long-running manager, James Anderson, is about to retire. Since first managing the trust in 2000, its share price has risen 1,350%. Although the trust’s new managers have worked at SMT for years and are committed to the same strategy, I see this handover as a potential risk.
Would I buy shares in Scottish Mortgage Investment Trust today? Yes. SMT provides shareholders with exposure to many of the world’s best tech and healthcare growth stocks. The trust also has a record of identifying many future big winners.
So I’d be happy to buy SMT as a long-term investment — preferably holding for at least 10 years.
The second investment trust I’m going to look at is a little smaller. Lowland Investment Company (LSE: LWI) operates in a sector of the market where I’ve much more knowledge — UK dividend shares.
The trust’s remit is to provide market-beating income and growth, with an emphasis on income. Lowland’s share price has risen by nearly 50% over the last year, outperforming the FTSE 100’s 16% gain.
I wouldn’t expect this kind of performance in more normal times — over the last five years, Lowland’s lead over the FTSE 100 has been much smaller. However, the big attraction of this trust for me is the trust’s dividend record. Lowland hasn’t cut its dividend for 30 years and currently offers a 4.2% dividend yield.
By contrast, the dividend yield on the FTSE 100 is currently just 3.1% and many FTSE shares did cut their dividends last year.
One risk I can see is that around 30% of Lowland’s portfolio is currently invested in financial stocks, such as insurers Direct Line and Phoenix. Financials are doing quite well at the moment and offer some high yields. But this may not always be true — heavy exposure to one sector can be a problem when market conditions change.
Despite this risk, Lowland’s long dividend record suggests to me the trust’s management have good processes in place for managing risk. This is an investment trust I’d buy for income today.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Roland Head owns shares of Direct Line Insurance. The Motley Fool UK owns shares of and has recommended Amazon and Tesla. The Motley Fool UK has recommended Moderna Inc. and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.