I have allocated a percentage of my portfolio to investment trusts. This is because I believe these vehicles are one of the best ways for me to build exposure to different sectors and industries. If I am not comfortable investing in an industry, I would rather outsource the process.
Unique investment trusts
A great example is the Allianz Technology Trust (LSE: ATT), which I would add to my portfolio to build exposure to the global technology sector.
Over the past five years, the trust has returned more than 300%, thanks to its exposure to high growth technology stocks such as Microsoft.
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Past performance should never be used to guide future potential and I think it is unlikely the trust will repeat this impressive performance over the next five years.
Nevertheless, as a way to build exposure to corporations like Microsoft and other more niche operators such as the cloud security company Zscaler, I think the trust looks incredibly attractive.
Unfortunately, some investment trusts can be quite expensive ways to invest in the market. Most charge an annual portfolio management fee, and some even charge a performance fee if they exceed their benchmark return.
The Allianz Technology Trust charges both. These fees exceeded 3.6% in 2020, although the trust did return 80% compared to its benchmark return of 42%. In the long run, these high fees could eat into investor returns.
Still, I am willing to pay a fee to investment trust managers who have experience in a particular sector. That is why I would buy this trust for my portfolio today despite the high cost.
Healthcare sector champion
Another trust I already own and would buy more of for my portfolio is the Worldwide Healthcare Trust (LSE: WWH).
This trust charges an annual management fee of just under 1%. It is managed by a team of experienced medical professionals who provide unique insight into the global healthcare sector. I am willing to pay for this experience, especially in such a specialist industry.
As well as paying a performance fee, another downside is that I have no input over the investments chosen. This is both a good and a bad thing. I can outsource the investment decisions to those who know better, but it also means that if they pick the wrong investments, my hard-earned money is at stake.
Despite this risk, I own the healthcare trust in my portfolio to build exposure to the sector and buy into the experience of its management team. Some of the top holdings in the portfolio include American pharmaceutical and healthcare giants such as Boston Scientific. This unique company manufactures devices for the international medical market.
The portfolio also contains several speculative names, such as Mirati Therapeutics which is developing cancer therapies. These high-risk, high-reward opportunities are not the sort of businesses I would be comfortable buying myself. I am happy to let the management team at this investment trust take on the work.
