The stock market offers a bewildering array of buying options, with their many and varied risks.
One way to achieve some safety through diversification is to go for investment trusts, which spreads shareholders’ cash across a range of underlying investments. It’s a strategy I like. And I have the following on my watch list.
The City of London Investment Trust pays dividends of around 5% per year. I value long-term progressive consistency over a one-off high dividend today, and this one has raised its dividends for 55 years in a row now.
The bulk of the trust’s investments are in a varied selection of top FTSE 100 stocks. The top three, currently, are British American Tobacco, Diageo and RELX. BAE Systems and GlaxoSmithkline are also in the top 10.
Murray Income Trust has a similar approach, with AstraZeneca its biggest holding. That, and Diageo, each account for at least 5% of the total invested cash. We’re looking at slightly lower dividend yields here, coming in around 4%. But this is another that makes it onto the Association of Investment Companies’ list of Dividend Heroes, having raised its annual payment for 54 years in a row.
I think these two investment trusts provide attractive selections. They are at risk of any downturns in the FTSE 100 though, offering little diversification beyond that.
Smaller companies
Investing in smaller companies can provide better growth, but with greater risk. The BlackRock Smaller Companies Trust offers that, with a very diverse range of investments. Watches of Switzerland, Oxford Instruments, and Pets At Home are among its top 10 holdings.
Investments are usually a trade-off between growth and income, with the bigger companies typically providing the higher dividends. That’s the case here when going for smaller companies. Dividends are lower, yielding around 2%. But they have increased for 18 straight years.
Global diversification
These trusts all invest mainly in UK stocks, but what about global diversification? For that, I’m looking closely at Bankers Investment Trust. Bankers spreads its investment pretty much evenly around the world, with around a third of the cash in US stocks. Slightly more than that is in the UK and Europe, with the remainder in Asia.
Microsoft is the trust’s biggest holding, with Visa and Home Depot there too. It’s a mix of growth and income opportunities, and it’s another with a great dividend track record. Bankers has lifted its dividend every year for 54 years.
Real estate investment trust
Finally, I think a real estate investment trust (REIT) can provide a great way into the property market, without having to stump up the cash for (and take the risk of) a whole individual property.
I like the look of AEW UK REIT, which invests in UK freehold and leasehold commercial properties. You might think I’m mad considering commercial property right now. And yes, the pandemic has shown the risks involved. But as the UK economy gets back on its feet, I reckon a REIT like this might provide a decent long-term home for some of my investment cash.
Trusts like these expose investors to the risks associated with their individual markets, and often the vagaries of exchange rates. But, on the whole, I’ve liked the way they allow me to effectively invest in far more companies than I could individually.
