2 FTSE 250 investment trusts I’d buy and hold for 20 years

These unfashionable, value-focused investment trusts could deliver superior returns in the coming decades, says G A Chester.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The great financial experiment of the last 10 years has seen investors flock to growth and momentum. It’s been the era of the so-called FAANGs and ‘bond proxy’ stocks.

The FAANGs are Facebook, Amazon, Apple, Netflix and Google’s parent Alphabet. Bond proxies are blue-chip companies that pay reliable, bond-coupon-like dividends. Think Procter & Gamble and Johnson & Johnson in the US, and Unilever and Diageo in the UK.

These themes are reflected in the portfolios of London’s current best-performing investment trusts in the global sector: Scottish Mortgage (a 10-year return of 609%) and Lindsell Train (625%).

However, as almost all investment literature warns, “past performance may not be indicative of future results”. And I’m concerned this could well be the case with the likes of Scottish Mortgage. This is due to the eye-watering valuations of many of the underlying holdings.

Unfashionable

Value investing, as formulated by Ben Graham aeons ago, has outperformed growth over long timescales. As such, I believe unfashionable, value-focused investment trusts could deliver superior returns in the coming decades.

With this in mind, I’d be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT) and Caledonia Investments (LSE: CLDN). Their returns over the last 10 years — 130% and 157%, respectively — have been solid rather than spectacular.

Discount-to-NAV specialist

AVI Global (formerly British Empire Trust) was established in 1889, and has been managed by Asset Value Investors since 1985. This trust seeks out listed companies whose shares stand at compelling discounts to their estimated underlying net asset values (NAVs). It looks for attractive businesses, with honest, intelligent management willing to engage with shareholders, and catalysts to bring the share prices to their true values.

It trawls the world for opportunities. For example, it invested in 16 Japanese companies with substantial excess capital, and is engaging with management about releasing it. The trust’s other investments include discounted closed-end investment companies (such as Third Point Offshore), asset-backed groups (such as Sony Corp) and family-backed holding companies (such as Jardine Strategic).

AVI Global reckons its portfolio is at a discount of over 30% to underlying NAV. And with the trust itself trading at a discount of around 10%, I see good value on offer for investors today.

Long-term value investor

Caledonia’s heritage goes back to the shipping empire established by Sir Charles Cayzer in 1878. The trust still enjoys the backing of the Cayzer family today. It says this gives “support to our long-term value investment horizon and provides a foundation to our culture of conservative generational wealth management.”

Over a third of Caledonia’s net assets are private capital investments in 11 UK companies with equity values of £25m-£125m. It has significant direct influence over these businesses and their management. They include control systems firm Deep Sea Electronics and bingo clubs chain Buzz Bingo.

The trust also invests in quoted companies (such as Microsoft and British American Tobacco) and funds, including quoted and private equity. The funds provide broad exposure to areas of the world where it would prove more difficult for Caledonia to invest directly.

Trading at a 17% discount to NAV, I reckon this trust is another terrific pick for long-term value investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Microsoft, and Unilever. The Motley Fool UK has recommended Diageo and Johnson & Johnson and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »