Five top investment trusts to buy and forget until 2040
Picking winning long-term stocks is extremely difficult but, with a sensible spread of solid funds, investors can look forward to maximum gains with minimum fuss, says Max King
Picking the stocks that will be great investments for 20 years is easier said than done, as a glance at the constituents of the FTSE 100 20 years ago shows. Many have not survived. Some of the major tech stocks of 20 years ago have been winners, but have also provided a gut-wrenching roller-coaster ride. Note that the entire gain in the US stockmarket since 1926 is due to the best 4% of listed companies.
Picking investment trusts for the next 20 years is much easier. A diverse portfolio will reduce the impact of poor investments. A good manager, while keeping portfolio turnover low, will navigate the changing opportunities and threats along the way, whether these stem from valuations, the overall economic outlook, or individual businesses. All the investor has to do is pick an area of the market offering attractive long-term potential and find a trust with the right record, investment thesis and management.
Good managers can lose their touch or prove to have been lucky rather than skilful. They also move on and their successor may or may not be able to follow in their footsteps. Seemingly attractive long-term prospects may turn out to have been a mirage. If so, sell. But nothing goes up in a straight line, so expect setbacks and even long periods of dull performance when fundamental value catches up with the share price.
In my first article for MoneyWeek in September 2002, I recommended Baillie Gifford Japan and Invesco Perpetual UK Smaller Companies. The former has since risen ninefold; the latter, with dividends reinvested, eightfold. I still hold the former, but switched the latter into BlackRock Smaller Companies ten years ago: Invesco’s manager changed and the BlackRock trust was trading on a much higher discount to net asset value (NAV). This added 25% to returns over the last five years. Both trusts are in my top-five for the next 20 years, along with other long-standing favourites.
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