2 value-focused alternatives I prefer to the Scottish Mortgage Investment Trust

Scottish Mortgage Investment Trust is having a hard time as its tech investments take a pounding, but these value-focused investment trusts look tempting.

| 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.

happy senior couple using a laptop in their living room to look at their financial budgets

Image source: Getty Images

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.

I recently wrote that I’ll be avoiding Scottish Mortgage Investment Trust because of concerns over further stock market volatility, which could particularly affect tech stocks. The almost inevitable rise of interest rates this year makes a strong case for seeking out value-focused investments. I particularly like the idea of buying into investment trusts because they are diversified, holding multiple shares, and can trade at a discount to their net asset value, thus providing a margin of safety.

An excellent investment trust

The Lowland Investment Company (LSE: LWI), should fit the bill as a share poised to benefit from the appetite for value-focused investments as inflation persists. Top holdings include big UK shares such as Shell, GlaxoSmithKline, Phoenix Group, HSBC and BP.

Shell’s share price has risen by 18% this year, and commodities could continue to do well in an inflationary environment. The flipside of this is that the trust is very UK-focused so if investors continue to avoid the UK, as many institutional big-hitters do, then that may impact the trust’s performance. Its big exposure to financials such as banks and to oil & gas could be an issue too, as both of these industries are cyclical.

Coupled with net gearing of 15%, which could amplify losses if the trust invests in the wrong companies, this one isn’t without risks.

However, the shares trade on a discount of around 6% (although the discount has been larger in recent times). As well as that, shares in the trust yield 4.46%, which I think has appeal from an income perspective. Charges of 0.59% also compare favourably to other trusts, so I’m thinking of buying shares in it to get diversified exposure to UK value shares. 

Better than SMT?

The Schroder Income Growth Fund (LSE: SCF) is another higher-yielding UK-focused pick. The yield is about 4.1%, so that’s good versus most other stock market investments and compared to interest rates as they currently stand. The trust’s top holdings are AstraZeneca, GlaxoSmithKline, Anglo American and Shell.

The immediately obvious downside to this one is that it trades on a premium of about 1% to its net asset value. On top of that, it’s slightly more expensive with a charge of 0.79%. Its consistent record of dividend growth potentially makes that a price worth paying, especially if its underlying holdings do well and push up the net asset value of the trust.

The bottom line is these trusts are quite similar in many ways so I wouldn’t buy both – even though the two of them could well outperform Scottish Mortgage Investment Trust this year and maybe also over the longer term also. It’s a close call between them but Lowland looks to have the slight edge for me based on its lower charges and the fact it trades on a discount.

To recap I think inflation will drive the share prices of these value-focused investments. That’s why I’m keen to add a value investment trust to my portfolio. 

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.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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

Photo of a man going through financial problems
Investing Articles

Is a stock market crash coming? And what should I do now?

Global investors are panicking about a new US stock market crash in the days or weeks ahead. Here's how I'm…

Read more »

Investing Articles

FTSE shares: a brilliant opportunity for investors to get rich?

With valuations in the US looking full, Paul Summers thinks there's a good chance that FTSE stocks might become more…

Read more »

Growth Shares

2 FTSE 100 stocks that could outperform the index in 2025

Jon Smith flags up a couple of FTSE 100 stocks that have strong momentum right now and have beaten the…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

1 stock market mistake to avoid in 2025

This Fool has been battling bouts of of FOMO recently, as one of his growth shares enjoys a big bull…

Read more »

Investing Articles

2 no-brainer buys for my Stocks and Shares ISA in 2025

Harvey Jones picks out a couple of thriving FTSE 100 companies that he's keen to add to his Stocks and…

Read more »

Number three written on white chat bubble on blue background
Investing For Beginners

3 investing mistakes to avoid when buying UK shares for 2025

Jon Smith flags up several points for investors to note when it comes to thinking about which UK shares to…

Read more »

Investing Articles

Will the rocketing Scottish Mortgage share price crash back to earth in 2025?

The recent surge in the Scottish Mortgage share price caught Harvey Jones by surprise. He was on the brink of…

Read more »

Investing Articles

2 cheap shares I’ll consider buying for my ISA in 2025

Harvey Jones will be on the hunt for cheap shares for his ISA in 2025 and these two unsung FTSE…

Read more »