These 2 investment trusts could have made me a millionaire. Why won’t I buy them now?

These investment trusts could have made me an ISA millionaire if I’d bought at the right time. I think today is the wrong time. So what am I buying instead?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve been an advocate of investment trusts for more than 20 years, and they’ve justified my faith by delivering fantastic outperformance in that time.

Incredibly, a total of 30 investment trusts would have made me more than £1m if I had invested my full annual ISA allowance in the same trust each year, according to data from the Association of Investment Companies (AIC).

This assumes I invested my full ISA allowance on 6 April every year since ISAs were launched in 1999. In total I would have paid in £263,440 across 23 tax years.

I’m a fan of investment trusts

HgCapital Trust, which invests primarily in software and services businesses, would have turned my ISA contributions into a staggering £2,062,931 since 1999. I don’t know much about that particular fund but I’ve kept close tabs on the second and fifth-best-performing investment trusts.

Scottish Mortgage Investment Trust (LSE: SMT) and Polar Capital Technology Trust (LSE: PCT) have amazing track records. They would have transformed £263,440 into an incredible £2,046,762 and £1,555,681 respectively since 1999, AIC figures show.

Both funds built their success on the all-conquering technology sector, and I really wish I’d bought at least one of them. But I didn’t, and I wouldn’t today. Investment trends go in cycles and I suspect the tech sector that’s important to them will now struggle to repeat its fabulous success.

Scottish Mortgage, managed by Baillie Gifford, now has £13.9bn worth of assets under management. That’s a tribute to its blistering performance. At one point, it had returned a staggering 500% in five years. Yet nothing lasts forever and the king of investment trusts has fallen more than a third in the last six months.

Near-zero interest rates and loose monetary fiscal policy drove the tech boom. Investors piled into companies like Apple and Amazon even as their valuations soared, assuming they would continue to grow and deliver even bigger profits in future.

That era is drawing to a close as central bankers prepare to hike rates and taper bond purchases. Inflation is rocketing, and that will erode the real terms value of future tech company earnings. This makes today’s sky-high valuations harder to justify. That’s putting me off these two investment trusts.

I’ve got enough US tech, thank you

Scottish Mortgage has massive holdings in US tech giants Amazon, Nvidia and Tesla, and Chinese behemoths Alibaba Group and Tencent Holdings. Polar Capital is a rollcall of US tech titans. Apple, Amazon, Google owner Alphabet and Facebook owner Meta make up the top four holdings. There’s a fair bit of crossover between these two investment trusts.

I still retain exposure to US tech, through an S&P 500 tracker fund, so there’s another reason for me to shun these two tech-heavy investment trusts.

US tech giants do look slightly better value after the recent sell-off, but I’m still not tempted. I’m always wary of jumping into once fashionable sectors, for fear of jumping on the bandwagon too late.

Once the glory days are gone they rarely return. But as I said, I’m a fan of investment trusts and I’ll still buy shares in some. Now though, I’m looking for those targeting FTSE 100 value stocks instead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones doesn't hold any of the shares mentioned in this article. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Apple, and Tesla. 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.

More on Investing Articles

Investing Articles

Up 670% in 2 years! This former penny share is skyrocketing on SpaceX contracts

Shares of Filtronic (LON:FTC) were soaring to multi-year highs today after another contract win with SpaceX. Should I buy this…

Read more »

Investing Articles

Why is the Greatland Gold (GGP) share price up 10% today?

Our writer looks at the reasons why the Greatland Gold (GGP) share price is the AIM 100’s best performer today.

Read more »

Passive income text with pin graph chart on business table
Investing Articles

What do I need for a passive income of £100k a year?

How much would I need to invest to collect a very healthy yearly passive income on my retirement? Surprisingly, the…

Read more »

US Stock

£2k invested in Nvidia stock 2 years ago is now worth this boggling amount…

Jon Smith details how much unrealised profit an investor would have from buying Nvidia stock but is cautious about what…

Read more »

Investing Articles

2 value stocks that still look cheap despite the FTSE rally!

Harvey Jones picks out two UK value stocks that still look nicely priced even as the UK index climbs. He…

Read more »

Dividend Shares

I asked ChatGPT to build the perfect passive income portfolio and here’s the result

Jon Smith turns to the world of AI to try and find out whether ChatGPT could build an investor a…

Read more »

Investing Articles

£20,000 to invest? Here’s how the FTSE 100 could deliver a £2,040 passive income

Here are two ways that investors with a lump sum to spend could target a large passive income with FTSE…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s how someone could start investing in 2025 with just £1,000

Planning to start investing in 2025? This writer highlights two very different stocks that might be worth considering for a…

Read more »