Investment trusts are the novice investor’s best friend. These companies have been around in one form or another for more than a century and many trusts in existence today have several decades of history behind them.
Put simply, investment trusts are long-term-focused diversified instruments, which makes them the perfect asset for both beginners and experienced investors alike.
One example is the Diverse Income Trust (LSE: DIVI) from fund manager Miton. Diverse Income’s goal is to achieve a steady level of income for its investors as well as booking capital growth over the long term. Even though it’s only a few years old (inception 2011), the company has so far managed to beat its benchmark substantially, returning a cumulative 160% since launch, compared to its UK Equity Income Sector Benchmark return of 98.9% over the same period.
Diverse Income has been able to achieve this return by investing in a broad selection of UK mid-caps that have both bright growth prospects and sustainable dividends. Currently, the top holdings include logistics company Stobart Group, insurance business Charles Taylor, IG Design Group and Zotefoams.
At the time of writing the trust supports a dividend yield of 3.3% and trades at a slight discount to its net asset value of 0.6% (last recorded net asset value is 103.9p). The one downside of this investment is the trust’s slightly higher than average ongoing management charge of 1.15%, although I believe that this is a fair charge considering the outperformance it has generated over the past five years.
Another investment trust that might be a great addition to a beginner investors’ portfolio is the Artemis Alpha Trust (LSE: ATS).
I believe this one is an excellent buy as it offers exposure to growth stocks as well as international equities and unquoted businesses. According to the trust’s most recent half-year report, at the end of October, 25% of the portfolio was invested in unquoted companies while only 87% of the public quoted equity portfolio was invested in the UK.
Is that a good thing? Unfortunately, Artemis Alpha’s high-risk approach hasn’t paid off over the past five years. During this period the fund has underperformed its benchmark by around 50% excluding dividends. Thanks to this lacklustre performance, the shares currently trade at a discount to net asset value of 19.6%. On a net asset value basis, the trust has only underperformed by 35% excluding dividends.
Nevertheless, despite this poor short-term performance, I believe that over the long run, Artemis Alpha’s international diversification coupled with its focus on high growth businesses will produce returns for investors. Total annual fees are only 0.9%, and in addition, the trust supports a dividend yield of 1.4%.
For beginner investors who want exposure to high-growth small-caps, but don’t know where to start, Artemis Alpha could be a great buy.
Making money the easy way
Investment trusts can be a great tool to improve your wealth with minimal effort as they're usually run by experienced managers who know the ins and outs of the market. Indeed, the Diverse Income Trust is a great example of how trusts can create wealth for you with little effort on your part.
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Rupert Hargreaves owns shares in Miton Group. The Motley Fool UK has no position in any of the shares mentioned. 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.