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.
