Whether the recent positive momentum seen in the last few trading days will carry on into June is hard to say. What I do feel vastly more confident about is that a sustained stock market recovery does lie ahead.
That’s why I’ve been adding to my positions in some investment trusts over recent weeks (or strongly considering doing so).
Scottish Mortgage Investment Trust
One of the most high-profile casualties of 2022 so far has been Scottish Mortgage Investment Trust (LSE: SMT). Shares are down 37%.
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Taking a ‘glass-half-full’ approach, this does at least give me a chance to add to my position. When the stock market recovery comes, I’m confident it’s the quality growth stocks that Scottish Mortgage holds — including Amazon, chip-making manufacturer equipment ASML and luxury goods firm Kering — that will do very well.
Clearly, this might take a while. Inflation has the potential to temporarily dent the earnings of at least two of the three companies mentioned above. Some holders may also be anxious about the recent departure of co-manager James Anderson.
Notwithstanding this, it’s hard to be bearish on a trust that’s double the price it was five years ago, even after this year’s big fall. A 0.34% ongoing charge is great value in the active management space too.
I fully intend to buy some more SMT in June.
Montanaro European Smaller Companies Trust
One investment trust I’ve already been topping up on has been Montanaro European Smaller Companies Trust (LSE: MTE). That may seem like a brave (or foolhardy) decision, considering what’s happening in Ukraine. However, I’m of the opinion that a lot of the damage has already been done. The trust’s value has tumbled 37% in 2022 so far.
Again, it’s the long-term returns that I’m more bothered about. While past performance doesn’t guarantee anything, a 75% increase in MTE’s share price since 2017 does suggest that manager George Cooke is a great stock-picker.
Indeed, part of the reason for the trust’s success is that he is able to snap up shares that the majority of market participants aren’t willing, or able, to research. This leads to price inefficiency. And that’s where true wealth-building lies.
Yes, there could be more bumps ahead. The ongoing charge of 1.2% is also high. However, I’m confident the superior performance of MTE over the next few decades will make up for this.
Smithson Investment Trust
Similar to MTE, I’ve been continuing to increase my position in Smithson (LSE: SSON). This is despite it giving up a lot of the gains it amassed since the Covid-19 crash of 2020.
Just like its big brother Fundsmith Equity, Smithson aims to buy quality stocks at reasonable prices and then do nothing. Given just how far shares have fallen, I’m pretty sure manager Simon Barnard has been rubbing his hands at the opportunities currently available to him.
That said, quality stocks rarely go for bargain prices and there’s a potential for portfolio members like Rightmove and Fevertree to continue falling if investors remain skittish about the macro-economic picture.
Even so, I remember not taking advantage of Smithson plummeting in value in 2020 only to deeply regret it later. I’m determined not to make the same mistake again.
