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There’s a place in my long-term diversified portfolio for investment trusts. And I’m keen on two that have delivered decent returns over many years.
What’s more, they have different but complementary investment strategies. So that adds diversification by strategy to the mix. I’d put £5k into each of them without hesitation right now. However, both these trusts invest in mainly UK listed companies. And that means I’d need to invest elsewhere for international diversification.
Quality and dividends
The first is Finsbury Growth and Income Trust (LSE: FGT). It’s managed by the well-known outperforming fund manager Nick Train. And he focuses on identifying quality companies with the aim of achieving capital and income growth within the trust’s portfolio.
The second is Merchants Trust (LSE: MRCH). It’s managed by Simon Gergel. And he focuses on identifying companies with a high dividend yield. The trust aims to provide its investors with above average levels of income and income growth. And on top of that, it hopes that long-term capital growth will be a by-product of the strategy.
So I separate the two investment styles in my head by thinking of FGT as being quality-led and MRCH as being led by the dividend yield. And, to me, the two styles could sit nicely together in a portfolio.
We can get an idea of what quality investing looks like in Finsbury Growth and Income Trust by looking at its top 10 investments by weighting. And they are RELX, Diageo, London Stock Exchange, Unilever, Burberry, Mondelez, Experian, Sage, Schroders and Rémy Cointreau.
Those stocks make up around 83% of the trust’s invested funds. Therefore, the portfolio is fairly concentrated. And that can be a good thing because wider diversification could lead to performance similar to a tracker fund. In which case, I could just as well buy a tracker fund with its lower fees.
Meanwhile, the top 10 holdings of Merchant’s Trust are Shell, British American Tobacco, GSK, Imperial Brands, BP, Rio Tinto, IG Group, SSE, DCC and CRH. However, those stocks only make up around 39% of the trust’s invested funds. And that means the portfolio is far less concentrated than Finsbury’s.
Of course, it’s possible for me to invest directly into these 20. But I like the idea of managers looking after a part of my portfolio for me. Nevertheless, just because both these trusts have performed well in the past doesn’t guarantee good performance in the future. And it’s even possible for me to lose money on each trust’s shares.
But I’d be inclined to embrace the risks of share ownership in order to position my portfolio to benefit from upside potential. And I’d dig in with deeper research right now with a view to buying some of each trust’s shares to hold for the long haul.