Investment trusts have been around in one form or another for centuries. Many of the trusts around today have been making money for investors for over 100 years.
In my opinion, this long-term focus makes them perfect assets to hold in your retirement portfolio. So today, I’m looking at two that I believe would fit well into any investors’ SIPP.
Small-cap focus
Small-cap stocks have huge growth potential and can really turbocharge your portfolio’s performance. However, picking small-caps can be a tricky business. That’s why the Dunedin Smaller Companies Investment Trust (LSE: DNDL) is my first retirement portfolio pick.
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Over the past five years, Dunedin’s net asset value (NAV) has increased by 91%, outperforming the FTSE SmallCap Index by 7% over the same period. However, despite this return, the stock trades at a substantial 15.6% discount to net asset value. So the actual share price return over this period has lagged NAV growth.
To try and correct this anomaly, Dunedin’s management has decided the best course of action is to merge with the Standard Life UK Smaller Companies Trust. Managed by star fund manager Harry Nimmo, this firm has a much higher profile and, as a result, trades at a discount to NAV of only 4%.
By combining the two, investors should benefit from economies of scale, and Dunedin’s shareholders should immediately benefit from an uplift in its share price as the discount to NAV re-rates. The current management fee for the Standard Life trust is 1.1% and, over the past five years, Nimmo and team have produced an average annual return for investors of 14.4%.
So all in all, the Dunedin Investment trust offers exposure to both small-cap growth stocks and a should see a re-rating of its shares in the months ahead as the merger with Standard Life completes.
Contrarian play
Another investment trust I believe could be a fantastic addition to any retirement portfolio is the Scottish Investment Trust (LSE: SCIN).
This trust focuses on finding contrarian value investments, an approach that is designed to yield market-beating performance in all environments.
Established in 1887, this firm has now been investing money for shareholders for more than 130 years, and has increased its regular dividend investors every year for the past 34 years, earning it the Association of Investment Companies’ ‘Dividend Hero’ status. At the time of writing the shares support a dividend yield of 2.4%.
Long-term outlook
The managers of the Scottish Investment Trust are not overly concerned about short-term performance. They have a long-term focus, which makes this company a perfect pick for retirement portfolios.
What’s more, the managers are unconstrained by borders and can invest in markets around the world — wherever they can find value. For example, right now a chunk of the portfolio is invested in Japanese banks. Around a third is invested in the UK and another third in North America.
By using this approach, over the past decade the trust has smashed its benchmark, returning 218% compared to 195% for the MSCI UK All-Cap Index. It’s this track record of performance, coupled with the firm’s low annual management fee of 0.5% and long-term focus, that leaves me excited about the Scottish Investment Trust’s future potential.
