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Forget buy-to-let! I’d buy these 3 investment trusts to make £1m

The government is doing everything it can to try and discourage amateur landlords from entering the buy-to-let market. With this being the case, I think investors should turn their backs on rental property and buy investment trusts instead.

Managed portfolio

The great thing about investment trusts is that you do not have to worry about the day-to-day management of the investments these companies own. The portfolios are managed by professional investors, with specific mandates.

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The Scottish Mortgage Investment Trust (LSE: SMT) is a fantastic example of the benefits of investment trusts.

Overseen by fund manager James Anderson since April 2000, Scottish Mortgage has smashed its benchmark over the past five years by investing off the beaten track.

Anderson has an excellent record of picking growth stocks and holding on to them for years. There are currently around 85 holdings in the portfolio, including 44 unlisted investments. These unlisted investments do present a risk, but considering the diversification of the portfolio overall, I’m not too concerned about Anderson’s private market holdings.

Indeed, Amazon.com, one of the world’s largest tech companies, is by far the largest holding in the portfolio, making up around 9% of assets under management.

Scottish Mortage charges an annual management fee of 0.3% and offers a dividend yield of 0.6%. For most investors, it would be difficult to replicate the same kind of diversification and exposure to private investments without incurring substantial costs.

Small-cap growth

The Mercantile Investment Trust (LSE: MRC) could also be a great alternative to buy to let property, in my opinion. This investment trust is a mid-cap fund. It has a well-diversified portfolio, with no holding accounting for more than 4.1% of assets under management.

It has returned 100% over the past five years, excluding dividends, outperforming its benchmark by more than 50%.

Mercantile might not have the international exposure of Scottish Mortgage, but it does own some of the UK’s fastest-growing companies.

Mid-cap companies tend to produce better returns than large-caps over the long term because they have higher growth rates. This growth has also helped support the trust’s dividend, which currently stands at 2.7%. The annual management fee is just 0.4%.

Global diversification

The third and final investment trust that I am going to profile in this article is the Witan Investment Trust (LSE: WTAN).

Witan has a more diversified investment approach than both Scottish Mortgage and Mercantile, which has hurt returns, but if you are looking for stability, this might be the one for you. The largest holding in the portfolio does not exceed 2.5% of net asset value, and over the past five years, Witan has produced a total return for investors of nearly 70%.

Its portfolio is spread all over the world with around 20% of assets invested in UK equities, 20% in European equities and 20% in North American equities, and the remainder spread across the rest of the world.

At the time of writing, it supports a dividend yield of 2.3% and charges an annual management fee of 0.4%.

It is currently dealing at a discount to its net asset value of around 4%, so you can buy this portfolio of international growth stocks at a substantial discount to intrinsic value today.

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Rupert Hargreaves owns shares in the Mercantile Investment Trust. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.