Looking to invest £2,000? Here are two investment trusts I’d consider

I think investment trusts are a great way to start your portfolio. Here are two at the top of my list.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A lot of people starting out in investment are a bit scared by the possibility of losing money if their shares fall, and that’s a serious concern.

Once you have a broad portfolio and you’re already sitting on long-term profits, handling short-term falls becomes second nature. But if you’ve only built up one or two stocks, a downturn can be very discouraging.

That’s one of the reasons I like investment trusts, as they effectively pool shareholders’ money across a wider range of investments, and that can lead to reduced volatility.

I don’t hold any investment trusts now, but I have done in the past, and I have several on my watchlist. Here are two.

Big discount

One is Caledonia Investments (LSE: CLDN), which I gave a nod to back in October. The trust has a widely diversified portfolio, but its speciality is uncovering and buying up smaller companies with growth potential — and it’s been doing pretty well at it.

It’s global in its outlook too, so I also see Brexit defence characteristics there.

Caledonia shares have done well since I last looked at them. While the FTSE 100 carried on sliding throughout the final quarter of 2018, the investment trust went in the opposite direction.

As a result, over the past 12 months the shares have gained 9% while the FTSE 100 has lost 1% — and the trust is up 53% compared to just 8% for the index over five years. Dividends work the other way, with Caledonia’s 2.2% yield in 2018 about half the FTSE’s — but it’s still a significant overall winner.

Net Asset Value (NAV) per share stood at 3,441p at 31 December, and with a current price of 2,999p the shares are trading at a discount of 13%. I think that’s a bargain.

Better record

My colleague Peter Stephens sees Alliance Trust (LSE: ATST) as an attractive candidate for a starter portfolio, and I agree.

Alliance Trust refocused its investment approach in 2017, and it’s perhaps a little early to tell how that’s likely to work out. But we’re looking at an even better five-year performance than Caledonia Investments, with a rise of 65% — and dividend yields have been similar at around 2%.

Unsurprisingly, shares of a trust with that recent performance are closer to its NAV per share, but they’re still trading at a discount of 5%. That means investors value the company as a whole at 5% less than the assets it owns, and I see another undervaluation here.

Although dividend yields are not great, the trust’s progressive policy should see the actual cash rising ahead of inflation — and over a couple of decades, that can work wonders for your income levels.

Again, Alliance Trust invests globally, and that carries the same relative lack of exposure to Brexit worries in the UK. And I think diversification is important in the early days of your portfolio generally, as it provides a bit of a buffer against local shocks.

I like both

At my stage of investment I don’t really need that single-stock diversification, but I’m looking at these trusts from a different perspective. Although I’m mainly a dividend investor these days, it’s not 100%, and I’m seriously considering the two of them for the more modest growth portion of my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »