Investment trusts can be fantastic building blocks when constructing a portfolio. Through a single investment, they offer instant diversification across a number of companies.
Here, I’ll take a look at three top-notch trusts that form the bedrock of my own portfolio.
Dividends and growth
First up we have BlackRock World Mining Trust (LSE: BRWM). As the name suggests, this firm invests in mining stocks around the globe. These include mega-miners like Rio Tinto and BHP, but also smaller players that could offer more rapid growth.
The stock currently carries a 6.9% dividend yield. Admittedly, that may be come under pressure in the near term following an economic slowdown in China, which consumes vast quantities of raw materials. That’s a risk here.
However, the main attraction is the future. As the world gears up for net zero, demand for raw materials is set to soar for many decades.
The electrification of the global economy is going to require unbelievable amounts of copper. Nickel and lithium are vital for electric vehicle (EV) batteries, while wind turbines are predominantly made of steel (derived from iron ore).
The trust gives my portfolio broad-based exposure to this trend, offering handy income along the way.
There’s an ongoing charge of 1.06%.
High-quality UK stocks
Next up is Finsbury Growth & Income Trust (LSE: FGT). This is run by star manager Nick Train, with the portfolio mainly consisting of high-quality growth stocks listed in the UK.
There’s a thematic focus on the data revolution, with top holdings like RELX, London Stock Exchange Group and software firm Sage. To my mind, these are among the best FTSE 100 stocks around. And as I write, they’ve risen between 29% and 57% in 2023.
However, the trust’s shares have only risen around 1% in the same period. This is because it also contains some disappointing stocks, notably Burberry (down 27%) and Diageo (down 21%).
The drag on performance by these laggards is magnified due to the concentrated portfolio of just 23 stocks.
While it’s possible this disappointing performance could persist, I’m backing the trust to do well based on the quality of the portfolio.
There’s a 2.2% dividend yield and the ongoing charge is 0.6%.
Disruptive global growth
Finally, we have Scottish Mortgage Investment Trust (LSE: SMT), with the lowest ongoing charge of 0.34%.
The FTSE 100-listed firm states: “Our mission is to identify companies and entrepreneurs building the future of our economy. Companies set to change the world.”
So what might those be?
Well, there are those one might expect. These include Nvidia in artificial intelligence, Amazon in e-commerce and cloud computing, Tesla in EVs, solar energy, humanoid robots (and whatever Elon Musk targets next).
Then there are the next generation of potential big winners. Some of these include Joby Aviation (electric flying taxis), Northvolt (lithium-ion batteries) and Zipline (drone delivery).
One thing worth bearing in mind here is that the shares can be very volatile. However, the managers stress that shareholders should prepare for this. Progress is rarely linear.
As a result, the stock is suited to investors with a five-to-10-year (or longer) investing horizon. It’s only over such periods that companies potentially changing the world can start to have a major impact.
