Investment trusts are attractive because they offer diversification through a single investment. Here, I’ll outline two FTSE 100 trusts that I’d buy on the dip right now if I didn’t already own them in my portfolio.
Going for growth
First up is Scottish Mortgage Investment Trust (LSE: SMT). The company’s portfolio contains a who’s who of top growth stocks, including Nvidia, Spotify and Amazon.
The share price has fallen 6.3% since topping 904p on 11 July and now sits at 847p. Over a three-year period, it’s down around 35%.
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I think this presents an opportunity for long-term investors to consider, especially as the shares are trading at an 8.7% discount to net asset value (NAV). In theory, this means I can buy the companies it owns for cheaper than their market value. That’s certainly better than buying them at a premium!
Another positive I’d highlight here is a noticeable shift in the type of companies the trust has been buying. This year, for example, it has added Meta Platforms and Taiwan Semiconductor Manufacturing (TSMC) to the portfolio.
These are very profitable firms with significant competitive advantages. Just as importantly, both stocks were purchased at attractive multiples before they took off due to excitement around artificial intelligence (AI).
In contrast to this, some loss-making companies with questionable competitive positions have been dumped. For instance, Chinese electric vehicle manufacturer NIO has made its way out of the portfolio. And as far as I can tell, meal-kit firm HelloFresh has also been jettisoned.
Ultimately, I think this focus on established public firms rather than unproven business models will improve performance and investor confidence.
One risk would be a continuation of the sell-off in AI stocks that we’ve seen recently. Over a third of the portfolio is now in this area.
Long term though, I think the trust is well placed to benefit from the widening technological revolution.
Hedge fund
While investment trusts generally offer diversification, Pershing Square Holdings (LSE: PSH) is an exception. As of the first quarter, it held only eight stocks.
So this is a very concentrated portfolio, which immediately makes it higher-risk than most. Investors are relying on the investing skill of Bill Ackman, the manager who runs the hedge fund underlying the trust. If he makes bad picks, the performance would likely suffer badly.
However, there’s no evidence that he’s lost his golden touch. Quite the opposite, in fact, as he’s more than doubled the total return of the S&P 500 over the last five years. And that’s without holding Nvidia.
In July though, the share price has dropped nearly 11% to 3,728p and currently sits at a six-month low.
The reason for the sell-off is largely due to shares of Universal Music Group, its biggest holding, which recently cratered 19% in response to a Q2 slowdown in subscription-based revenues.
Alphabet has also dropped lately, largely due to the wider tech sell-off. However, both firms remain dominant and I think the stocks will bounce back.
Meanwhile, the fund’s other top two US holdings are Chipotle Mexican Grill and Hilton Worldwide. These are also exceptionally strong firms that Ackman knows inside out.
I’d consider Pershing Square shares on this dip, especially while they’re trading at a massive 28.4% discount to NAV.
