Scottish Mortgage is one of my top 3 investment trusts for 2023

I want to own Scottish Mortgage for tech exposure and two other trusts for UK small cap and green energy exposure in 2023 and beyond.

| 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.

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.

Investment trusts trade just like any other stock. I like them because they are a relatively simple way to get exposure to a large number of stocks. The Scottish Mortgage Investment Trust (LSE: SMT) is one such trust I own for exposure to tech stocks.

I am considering adding the Blackrock Throgmorton Trust (LSE: THRG) to my portfolio to get broad exposure to smaller UK companies. But it’s not just stock portfolios that I can get exposure to by buying trusts. By owning The Renewables Infrastructure Group (LSE: TRIG), I get access to income and electricity-generating assets in the renewable energy space.

UK small-cap stocks

The manager of Blackrock Throgmorton seeks the highest-quality growth stocks in the UK small-cap space for its portfolio. The trust also takes short positions against companies that are likely to underperform, which differentiates this trust from its competitors.

Performance has been good in the long term. Over the last 10 years, the trust has returned 252% versus 130% for its benchmark. However, last year the BlackRock Throgmorton share price declined by 38%. That was due to growth underperforming in a time of rising interest rates and inflation. A modest amount of gearing also amplified losses.

Using data from Morningstar, I can see that the trust’s estimated net asset value (NAV) per share is 631p. The Black Throgmorton Trust share price is around 612p. That means that BlackRock Throgmorton’s portfolio is selling for about 3% less than what it is judged to be worth. And with that track record and some signs that inflation is abating, I think it is positioned to do well. I plan to start building a position this year.

Investing in renewable energy

The Renewables Infrastructure Group invests mainly in wind farms, but also solar and battery storage assets in the UK and Europe. It generates income from selling the electricity these assets generate. Inflation should gently nudge its revenues from existing operations higher over time. Plus the company continually seeks to add more revenue-generating assets.

The UK government’s windfall tax on electricity generators will drag on income in 2023 and 2024, possibly stalling dividend growth and putting pressure on the share price. But beyond 2024 I think that dividend growth will return. And since the renewable energy industry shows no sign of slowing its growth, I am happy to hold it in my portfolio for the long term. Its share price has grown by 113% since 2013, and I hope it can repeat that kind of performance.

Scottish Mortgage Investment Trust

Scottish Mortgage invests in companies that are bringing transformational technologies, products, and processes to market. It chases high growth but holds for the long term to realise it. Some of these investments are in unlisted companies, and overall the portfolio is rated as a six on a seven-point risk scale according to company literature.

That risk was highlighted last year when the company’s share price dropped 45.7% as the market turned away from growth stocks. But the rewards can also be great. Over the last 10 years, the Scottish Mortgage share price is up 421%. As with BlackRock Throgmorton, if inflation eases and rates stop rising, growth should come back into favour, making Scottish Mortgage a solid choice in 2023 and beyond for 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.

James McCombie has positions in The Renewables Infrastructure Group and the Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. 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

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »