Buying a selection of investment trusts can be a great way to gain exposure to the stock market. Not only do trusts provide instant diversification, but they also tend to be very cost-effective.
Here, I’m going to highlight five top investment trusts I like for 2022. I’d be comfortable buying all of them for my own portfolio today.
Scottish Mortgage Investment Trust
Starting with investment trusts for growth, one of my top picks here is Scottish Mortgage Investment Trust (LSE: SMT). This is a global equity product that’s managed by Baillie Gifford. It has a phenomenal track record (its share price is up around 333% over the last five years).
There are a number of things I like about Scottish Mortgage. One is that it provides exposure to some of the world’s largest tech companies. Top holdings currently include Tesla, Tencent, and Nvidia. Another is that it provides exposure to unlisted companies, such as payments firm Stripe and tech platform ByteDance. Normally, three kinds of unlisted companies are only accessible to sophisticated investors through venture capital funds.
Now this is a higher-risk investment trust. That’s because it owns a lot of high-growth companies which aren’t yet profitable. If these kinds of companies fall out of favour in 2022, SMT could underperform. So I wouldn’t want to have too much portfolio exposure here. All things considered however, I think it’s a top investment trust for long-term growth. Fees are very low, at 0.34% per year.
Smithson Investment Trust
Another growth-focused investment trust I like is Smithson (LSE: SSON). This is a mid-cap/small-cap product that’s managed by Fundsmith. Since its launch in 2018, it has performed very well, returning 23% per year to the end of November.
What I like about this trust is that, like its big brother Fundsmith Equity, it aims to invest in high-quality businesses that are dominant in their markets and have established excellent track records. This approach has delivered excellent returns for Fundsmith Equity over the long run and seems to be working for Smithson too.
I also like the fact it provides exposure to growth stocks that are more under the radar. Top holdings at the end of November, for example, included Rightmove, Fevertree Drinks, and Equifax.
One risk here is that the trust is quite concentrated. It only holds between 25 and 40 stocks which means that stock-specific risk could be relatively high compared to other more diversified trusts. I’m comfortable with this risk however, as I have plenty of other trusts, funds, and stocks in my portfolio. Fees here are 0.9% per year.
Allianz Technology Trust
My third pick for growth is the Allianz Technology Trust (LSE: ATT). This trust, which also has a five-star rating from Morningstar, is more niche in nature as it is focused purely on technology stocks.
One reason I like this trust is that it provides exposure to a broad mix of tech stocks. Not only does it hold the mega-cap tech giants such as Microsoft and Alphabet but it also holds smaller, up-and-coming players such as Okta and Snowflake.
I also like the fact that the trust is managed by the highly experienced AllianzGI Global Technology team, which is based in San Francisco. This location is only a stone’s throw from Silicon Valley, where many of the world’s top tech companies are based.
Of course, if technology stocks underperform in 2022, this trust is likely to underperform as well. So, I wouldn’t want to have too much portfolio exposure here. I think it could play a role in my diversified portfolio though. Fees are 0.8% per year.
Scottish American Investment Company
Turning to investment trusts for income, one of my top picks is Scottish American Investment Company (LSE: SAIN). This is a global equity product that’s also managed by Baillie Gifford. Its aim is to be a core investment for private investors seeking income. It has an excellent performance track record.
One reason I like this trust is that it has a very balanced portfolio. Unlike many other global equity trusts, it doesn’t have a huge US bias. At the end of November, around 33% of the portfolio was invested in US stocks, while 32% was invested in European stocks and 15% in Asian stocks. Top holdings at 30 November included Microsoft, Novo Nordisk, and Roche.
Now this trust doesn’t have a huge dividend yield. At present, it’s around 2.4%. However, it is a ‘Dividend Hero’, which means it has increased its dividend every year for at least 20 years.
One risk here is that the trust does hold quite a few growth stocks. This means that during market volatility, it could be more volatile than some other income-focused investment trusts. However, I see it as a good choice as part of a diversified portfolio. Ongoing charges are 0.7% per year.
Murray Income Trust
Finally, I also like the Murray Income Trust (LSE: MUT). This is another investment trust that’s focused on income. Its goal is to provide high and growing income with some capital growth by investing predominantly in UK shares. It’s managed by Aberdeen Standard Investments.
Like Scottish American, this trust is also a dividend hero, with a great long-term dividend growth track record. In 2021, total dividends amounted to 34.50p per share, which equates to a yield of nearly 4% at the current share price.
It’s not just the dividend track record that is impressive here however. Overall, recent returns have been very good as well. Over the five years to the end of November, MUT’s net asset value (NAV) rose 49%. By contrast, the FTSE All-Share Index returned 31% over the same period. Performance has been boosted by stocks such as Diageo, AstraZeneca, and Safestore, which are among the top holdings.
It’s worth pointing out that while this trust has an excellent long-term dividend track record, dividends are never guaranteed. It’s also worth noting that at times in the past, this trust has underperformed the market, due its focus on dividend payers. Overall however, there’s a lot to like about Murray Income Trust, in my view. Ongoing charges are 0.46% per year.
