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Investment trusts can transform an investor’s long-term returns from the mediocre from something spectacular.
Trusts often provide wide diversfication, which gives some protection from localised issues that can destroy investor profits. Some of these financial vehicles also provide targeted exposure to hot themes (like artificial intelligence, or AI), regions (think emerging regions) and industries (such as renewable energy).
Allianz Technology Trust (LSE:ATT), JPMorgan European Discovery Trust (LSE:JEDT), and Fidelity Special Values (LSE:FSV) are all great examples of high-performing investment trusts. Over the last half a decade, they’ve delivered an average annual return of 16.3%.
Can they keep producing the goods?
Riding the tech boom
Every aspect of our lives is becoming more digitalised. Allianz Technology Trust provides a clear pathway for investors to capitalise on this. And it’s done so with roaring success, providing an average annual return of 16.4% over five years.
Competition is significant across the technology sector. What’s more, the pace of development means today’s tech darling can be scrap metal after a few years (think Blackberry and MySpace).
Trusts like this Allianz can significantly reduce this threat. This one owns shares in 50 different companies, and what’s more, its portfolio is dominated by stocks with long records of innovation and very deep pockets.
Major holdings include market leaders Nvidia, Microsoft, Alphabet, and Apple. I think these US shares can continue dominating the tech scene over the next decade at least.
Euro star
The JPMorgan European Discovery Trust’s mission is “to provide capital growth from a diversified portfolio of high–quality smaller companies in Continental Europe“.
Investing in smaller companies can be riskier, and especially so during times of economic uncertainty. But the excellent long-term returns of this trust helps soothe any fears I have.
Over five years, it’s delivered an average annual return of 11.3%.
I especially like how highly diversified this trust is, which helps mitigate its focus on smaller businesses. Major European economies including Germany, France, and Italy are all well represented. And sectors range from consumer goods and energy to banks and information technology.
Can it continue to outperform? I think it can, helped by a steady rotation from expensive US shares into cheaper European ones. This trust holds 86 in total.
Biggest returns
Fidelity Special Values is geared towards companies it feels are unduly cheap, and whose potential the stock market is yet to recognise.
It’s done so with considerable success. Since November 2020, it’s delivered an average yearly return of 21.2%.
This Fidelity trust comes with a distinct UK flavour, which creates greater geographic risk. However, this strategy makes sense given the cheapness of London-listed companies versus those on overseas exchanges. More than 80% of its holdings are UK shares like Aviva, Lloyds, and British American Tobacco.
With 152 different equity holdings, this investment trust provides excellent diversification by industry. This is helped by its large contingent of global companies.
