Scottish Mortgage, Finsbury Growth & Income and 3i Infrastructure are among the investment trusts that are suitable for investors of any risk tolerance, according to the Adviser Fund Index (AFI).
The adviser group, which is made up of fund pickers from 20 investment firms, designed three portfolios for Trustnet with the mindset of cautious, balanced and aggressive investors.
Many funds appear in all three lists, but the weightings they should account for in a portfolio depend on the risk tolerance of the end investor. Below, Trustnet looks at the five trusts that are backed across all three portfolios and reveals why they are good options for all investors.
Scottish Mortgage
Darius McDermott, managing director of Chelsea Financial Services and a member of the AFI, said that the world’s largest investment trust was also the “go-to number-one investment trust”.
Its track record is the envy of its peers, having made a 1,228.8% return over the past decade, while the FTSE All World and average IT Global trust have gained 263.5% and 246.8%, respectively.
Total return of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The all-out growth trust is “probably the purest version of what Baillie Gifford does”, McDermott said, which is to buy structural growth winners of the future that can bring about a change in the world.
It also invests in unlisted companies, which may make it a strange choice for cautious investors, but McDermott added that as long as it makes up a small part of a cautious portfolio, it makes some sense.
“Even for cautious investors, there is a risk of missing out on the spectacular gains of certain high-growth funds, such as Scottish Mortgage, so it can be held by all investors, although how much you put in should depend on your risk tolerance,” he said.
HarbourVest Global Private Equity
The same logic applies to the HarbourVest Global Private Equity trust, a fund-of-funds portfolio that invests in underlying HarbourVest funds, which in turn buy unlisted companies from around the world.
“The asset class is the attraction here. You don’t get access to private equity in funds – it is only investment trusts that offer this,” McDermott said.
This trust has a been a standout performer, returning 574.9% over the past decade, more than double the gains of the FTSE All World index and its average IT Private Equity peer, as the below chart shows.
Total return of fund vs sector and benchmark over 10yrs
Source: FE Analytics
It is another that could account for a reasonable size in an aggressive portfolio, a moderate weighting in a balanced portfolio and only a small portion of a cautious investor’s pot.
“It should have lower correlation to stock markets and it can be very strong over the long term, but investors need to keep an eye on fees, share price discounts and volatility. If they can stomach those, then returns have been excellent,” McDermott said.
Worldwide Healthcare Trust
Another trust that sits towards the aggressive end of the risk spectrum, but which even cautious investors can’t afford to miss out on, is the Worldwide Healthcare Trust.
It invests in the “massive theme” of healthcare, McDermott said, which has been a profitable area of the market over the past 10 years. A growing middle class around the world, but particularly in emerging markets such as China, has increased the need (and ability to pay) for better medical treatments.
This trust is a “leader in the IT Biotechnology & Healthcare sector”, he added. It has made 498.8% over the past 10 years, ahead of both the sector and the MSCI World/Healthcare index, although it is third out of its four peers with a track record of this length.
Total return of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Finsbury Growth & Income
This trust, run by Nick Train, is a safer bet for all three types of investor, McDermott said, and could make up a core part of any portfolio.
The UK equity trust’s “very experienced fund manager” has produced strong long-term returns, up 250% over the past decade. The average peer in the IT UK Equity Income sector has made 145.6%, while the FTSE All Share benchmark index is up 113.1% over this time.
Train invests in a concentrated number of holdings – 24 at present – which have global pricing power and a long track record of success that can be sustained for years to come. This quality growth style has been in favour since the financial crisis as low bond yields have forced cautious investors into the stock market to generate a reasonable return.
Although its share price returns have been strong, it also has a reasonable yield of 1.9%, making it an option for income investors.
3i Infrastructure
Last on the list is 3i Infrastructure, which has made investors 307.8% over the past decade, more than double the gains of the average IT Infrastructure trust.
Total return of fund vs sector over 10yrs
Source: FE Analytics
“Investors tend to own infrastructure for stable and steady cashflows with a decent yield, and often these assets come with a link to inflation. This is offering something completely different to the others, but is another core option and will provide diversification away from equities,” McDermott said.
| Fund | Sector | Fund size | Manager name(s) | Yield | OCF | Gearing | Discount/Premium |
| 3I Infrastructure | IT Infrastructure | £2,950.6m | 3i Investments | 3% | 1.16% | 0.0% | 16.1% |
| Scottish Mortgage Investment Trust | IT Global | £2,1592.7m | James Anderson, Tom Slater, Lawrence Burns | 0.23% | 0.34% | 7.5% | 3.6% |
| Finsbury Growth & Income Trust | IT UK Equity Income | £1,976.3m | Nick Train | 0.019% | 0.64% | 0.9% | -5.1% |
| Worldwide Healthcare Trust PLC Ord 25P TR in GB | IT Biotechnology & Healthcare | £2,433.6m | Sven H Borho, Trevor Polischuk | 0.61% | 0.90% | 8.4% | -0.4% |
| HarbourVest Global Private Equity | IT Private Equity | £2,150.6m | HarbourVest Advisers L.P. | 0% | 0.60% | 0.8% | -16.7% |