I always fancied owning a buy-to-let or two, but feel like I’ve missed the boat. The Treasury’s tax crackdown means the sums no longer add up, as more of your profit is now swallowed up in tax.
Becoming an amateur landlord also take slots of effort, as you have the bother of doing up and maintaining the property, finding and replacing tenants, and complying with stiff regulations. You don’t have any of this if you invest regularly in a tax-free Stocks and Shares ISA instead.
You can buy shares or funds in seconds, and all you need do then is check their progress from time to time. They will not call you up in the middle of the night and ask you to fix a dripping tap, for example.
I’m a huge fan of investment trusts as the very best have a fantastic track record of delivering stock market growth and constantly increasing their dividends. New figures from the Association of Investment Companies show I’m not alone, and the two most searched for investment trusts are both favourites of mine – Scottish Mortgage Investment Trust (LSE: SMT) and City of London Investment Trust (LSE: CTY).
Scottish Mortgage was the most viewed investment company for the third year in a row, and with good reason. The FTSE 100-listed investment company has smashed its benchmarks to return an incredible 509% over the past 10 years. If you had invested £10,000 a decade ago, you would have £60,900 today.
This £8.5bn behemoth invests in a high-conviction, global portfolio of companies, with the aim of achieving a greater return than the FTSE All World Index.
My one concern is that it is heavily invested in the US, 53% of its portfolio, to be precise, and has been flattered by the country’s lengthy bull run. Its top 10 holdings include big names such as Amazon, Tesla Motors and Netflix.
It could struggle if the US market falls, as it must do one day. However, around 20% of its portfolio is in China, where it holds Alibaba Group and Tencent Holdings, and 18% in the eurozone. With just 2.3% exposure to UK equities, it gives you ample diversification from our home market.
Better still, Scottish Mortgage has a low ongoing charges fee of just 0.37%. The downside is that it trades at a 1.4% premium to net asset value, although that is actually lower than its long-term average of 1.7%. The yield is just 0.54%. If you still believe in the US stock market, this could be a good place to buy into it.
City of London
City of London is also well worth a look. Over 10 years, it has grown 176.5%. That is less spectacular than Scottish Mortgage, but it operates in a different sector, UK equity income, which hasn’t done as well as the US. This is a great income fund though, currently yielding a generous 4.28%.
This £1.7bn fund also has low ongoing charges of just 0.39%, and trades at a premium of 1.9% to net asset value, slightly higher than its long-term average of 1.2%.
Top 10 holdings are a roster of familiar names – Royal Dutch Shell, HSBC Holdings, Diageo, BP, Lloyds Banking Group and others you will recognise.
Scottish Mortgage and City of London operate in different sectors, and could complement each other very nicely as part of a balanced portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Tesla. The Motley Fool UK has recommended Diageo and Lloyds Banking Group. 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.