Buying shares in an investment trust is a quick and relatively inexpensive way to help diversify your investments. You won’t need to worry about handling your investments either, as investment trusts are professionally managed portfolios using a pool of money from many investors.
If you’re new to the world of investment trusts, then you might want to start out by taking a look at these low cost funds.
Global diversification
If I were going to pick just one fund to invest in, I would probably go with the Scottish Mortgage Investment Trust (LSE: SMT).
Launched in 1909, Scottish Mortgage is considered to be Baillie Gifford’s flagship investment trust. The fund invests in both developed and emerging economies, giving investors global diversification and the chance to participate in faster-growing markets.
Although investing in foreign stocks provides the possibility of greater long-term returns, it also carries exchange rate risks. As the pound strengthens or weakens against other currencies, your returns may fall or rise. The biggest exposure is to the dollar as the US is the top country exposure in the portfolio, with 47% of its total assets. Other sizeable exposure is to China with 19%, followed by Germany, Spain and Sweden. The UK currently represents less than 4% of its assets.
The managers of the trust aim to achieve a greater return than the FTSE AllWorld Index in sterling terms over a five-year rolling period. It has, so far, done an excellent job, having delivered total returns of 227% over the past five years, against the index’s comparable performance of 104%. Moreover, fees are low with an AIC annual ongoing charges ratio of 0.44%.
UK focus
The Independent Investment Trust (LSE: IIT) is an alternative pick for investors looking for more UK exposure. It benefits from very low costs, with an AIC annual ongoing charges ratio of just 0.34%.
Over the five years, the trust has delivered NAV total returns of 163%, which compares favourably to its fund peer group’s average return of 112%. The surge in shares of premium mixer drinks company Fevertree Drinks has no doubt played a big role in the fund’s performance, as the stock is its single biggest position, representing 12.5% of total assets.
Independent Investment Trust also has a great deal of exposure to the housebuilding sector, with big positions in Redrow (7.5%) and Crest Nicholson (6.4%). Along with smaller positions in Berkeley Group, McCarthy and Stone and Persimmon, its total exposure to the housebuilding stocks added up to 22.8% as of 31 May.
Smaller companies
For investors looking to gain exposure to smaller companies, an investment trust such as Henderson Smaller Companies (LSE: HSL) may offer an easier way in for those who might not have the time or experience to research small-cap stocks.
Henderson Smaller Companies is one of the top-performing UK small-cap funds. It has outperformed the Morningstar Investment Trusts UK Smaller Companies benchmark over the past five years, with an NAV total return of 63.6%, against the benchmark performance of 52.3%. What’s more, with shares in the trust trading at a substantial discount to its NAV of 15.5%, investors can effectively purchase its assets for less than the sum of its parts.
Last year, the fund had an AIC annual ongoing charges ratio of 0.44%.
