Recent Hargreaves Lansdown research shows of the 973 ISA millionaires on its platform, over 70% hold investment trusts. With this statistic in mind, I’m looking at investments trusts in the FTSE 100 index to add to my stock market portfolio.
Scottish Mortgage Investment Trust (LSE: SMT) and 3i Group (LSE: III) are long-standing Footsie constituents. They were joined by Pershing Square Holdings (LSE: PSH) two years ago following its promotion from the FTSE 250. Let’s examine each in turn.
Scottish Mortgage Investment Trust
The Scottish Mortgage share price has risen 150% over five years, despite a substantial recent drawdown. The investment trust offers shareholders exposure to US growth stocks, Chinese shares and unlisted equities.
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Scottish Mortgage has a significant concentration in biotech stocks. Leading mRNA technology pioneer Moderna and DNA-sequencing outfit Illumina feature in its top three holdings. They’ve helped Scottish Mortgage deliver stunning returns recently, but both stocks have fallen around 50% in 2022.
Scottish Mortgage shares have a high risk/reward profile. Deputy Manager Lawrence Burns recently stated “genuine long-term investing requires not just patience but the ability to endure periods of intense discomfort. We have experienced such discomfort often with our holdings.”
Taking Moderna as an example, mRNA technology has potential applications beyond Covid-19 vaccines to a range of healthcare issues from influenza to cancer. I believe it would be short-sighted to ignore Scottish Mortgage’s future growth prospects based solely on recent share price declines in its holdings.
3i Group
Venture capital group 3i has a particular focus on private equity and infrastructure in North America and Northern Europe. With a low price-to-earnings ratio of 2.69 and a dividend yield of 4.18%, 3i stock looks to me like an attractive value investment prospect at present.
Barclays recently issued a target of 1,840p for the 3i share price — considerably above today’s price of 1,112p. The investment trust’s most recent results give credibility to this bullish forecast. Total revenue for the last financial year increased by 44%. Furthermore, 3i hiked its dividends by 30%.
I see room for further growth, but 3i shares aren’t immune to challenges posed by soaring inflation. Consumer goods stocks make up a large portion of its portfolio. These companies are particularly susceptible to fluctuations in household spending.
Pershing Square Holdings
Bill Ackman’s investment trust is notable for its unique activist investment approach. Pershing focuses on large-capitalisation North American companies with strong potential that often have financial difficulties.
Pershing’s cumulative return of 234% since its inception in 2012 looks impressive at first glance. However, it trails the S&P 500‘s 278% return over the same period.
Ackman is undeniably a successful investor. After all, his net worth totals $2.8bn. However, recent blunders — including an ill-fated foray into Netflix shares — show even the most prescient investors make mistakes. Pershing liquidated its $1.1bn stake in April for a $400m loss.
Which FTSE 100 investment trust would I choose?
Each investment trust adopts a different investment philosophy, giving shareholders exposure to different corners of the stock market.
Currently, I think 3i is the best fit for my portfolio. After recently leapfrogging Scottish Mortgage to become the UK’s largest investment trust, it’s the first one I’d invest in.
