I think investment trusts are one of the best ways to invest in the stock market. These companies manage a portfolio of assets with the goal of producing positive returns for their investors.
They are not limited to just stocks and shares. Trusts can buy a range of different assets. Today, investors can acquire trusts that own everything from plane leases to energy storage facilities.
Indeed, the flexibility of these investment vehicles is the primary reason I think they can be the best way to invest in the stock market. And there is one investment trust that looks incredibly attractive to me right now.
The investment trust approach
The Herald Investment Trust (LSE: HRI) is an uncovered gem, in my opinion. It specialises in technology stocks.
Its overriding aim is to generate capital growth by investing in a technology and telecom equities portfolio. And it has achieved this goal over the past five years returning more than 100% over this period, outperforming its benchmark.
Unfortunately, as investors have moved away from high-flying tech stocks over the past couple of months, the trust’s performance has deteriorated. Over the past three months, shares in Herald have lost 22%.
However, I think this could present an opportunity to snap up some shares in this investment trust, which has a strong track record of creating value for shareholders at a discount.
The firm’s top holdings give some idea of the approach the company’s managers are using to invest in the market. At the end of 2021, the star holding was GB Group, a leader in identity data intelligence. The trust initially paid £3m for its stake in the enterprise several years ago. At the end of 2021, the holding was worth £48m.
GB Group helps governments and companies fight cybercrime, lower the cost of compliance and improve the customer digital onboarding experience. Demand for these services is only likely to increase as the world becomes more digitised. And it is a great example of Herald’s desire to seek out growth stocks with an edge.
Finding an edge
Unfortunately, this process does have some risks. Notably, investing in growth stocks is always going to be challenging. Therefore, despite the investment trust’s track record, there is no guarantee it will be able to find the next GB. Neither is there any guarantee that its existing holdings will continue to outperform.
As well as these issues, the trust also charges a management fee of more than 1%. This could eat into investor returns.
Despite these challenges and risks, I would invest £500 in this investment trust today. I think it offers a unique package of exposure to the tech industry and fast-growing smaller companies. As the global tech sector continues to expand, I believe the trust is one of the best ways to invest in tomorrow’s firms via an experienced investment management team.
