The Motley Fool

I’d buy these investment trusts for my 2021 Stocks & Shares ISA

Image source: Getty Images

I know a young person who’s planning to invest in a Stocks & Shares ISA for the first time in 2021, and he’s likely to start with an investment trust.

Risk can be a big problem when we’re starting out investing, and a bit of early diversification help can offset this. For this reason, I think an index tracker fund can be a great way to start.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

But we can also get diversification from an investment trust, especially one that spreads some of its cash across big FTSE 100 companies.

City of London Investment Trust, which I hold, does that. It focuses on progressive dividends. And it’s so good at it, it’s managed to raise its annual payout for 54 years in a row. That puts it in joint first place in the Dividend Heroes list, compiled by the Association of Investment companies.

The list includes all those investment companies that have increased their dividends for at least 20 years in a row. The top six have achieved this for 50 years or more, so I thought I’d check how they compare to the FTSE 100.

Investment trusts performance

I checked on their 20-year growth rate, their runs of dividend raises, and current dividend yields…

Trust/Index Dividend run
20-year growth Current yield
FTSE 100 0 17% 3.8%
City of London Inv Trust (CTY) 54 56% 4.9%
Bankers Inv Trust (BNKR) 54 256% 1.9%
Alliance Trust (ATST) 54 196% 1.5%
Caledonia Investments (CLDN) 53 111% 2.1%
BMO Global Smaller Companies (BGSC) 50 584% 1.0%
F&C Investment Trust (FCIT) 50 225% 1.4%

Before I go any further, I must offer the usual disclaimer. Past performance is not an indicator of future results. If every investment always kept on repeating its past performance, investing would be a no-brainer. But they don’t, and the way these trusts have outperformed the FTSE 100 over 20 years might not repeat over the next 20. We have, I need to keep reminding myself, been through an unusually tough two decades for the Footsie.

Although these investment trusts have all raised their dividends for more than 50 years, most of the yields are relatively low. But just look at some of those growth figures. Even City of London, which invests for income, has outperformed the index more than threefold, in growth terms. And how about BMO Global Smaller Companies? A gain of 584% over the past 20 years is pretty impressive.

Diversified expertise

Caution again though. Investing in smaller global companies has got to be one of the riskier strategies out there. And I wouldn’t bet on seeing the same performance over the next 20 years. Still, I’m thinking about the potential in that strategy. Given that I have no clue about buying companies like that directly, investing in this trust would be far less risky for me than trying to do it myself. I have it on my 2020 ISA candidates list.

Looking at just these six investment trusts, I’m seeing a pretty big helping of diversification. City of London is UK-focused, Caledonia is flexible, and the others are global. And BGSC, of course, concentrates on smaller companies.

It looks to me like these investment trusts, taken together, could offer more diversification than the FTSE 100. I think a chunk of my 2021 ISA investment cash will go into some of these trusts.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Alan Oscroft owns shares of City of London Inv Trust. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.