Could this FTSE 250 trust outperform Rolls-Royce over the next 5 years? I think so — and then some!

Our writer believes this US-focused FTSE 250 investment trust could have the potential to beat Rolls-Royce’s price performance by 2030 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.

Businessman using pen drawing line for increasing arrow from 2024 to 2025

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.

Rolls-Royce has been one of the best UK investments over the past five years but I think the stock’s future is questionable. Risk-averse investors with a long-term vision may prefer a reliable FTSE 250 investment trust with stable growth potential.

There’s no denying Rolls’ shares have been on an absolute tear. They’re up almost 500% in the past two years, far outperforming any other stock on the FTSE 100. But growth like that is seldom rational or sustainable.

As it continues to skyrocket, the chance of a correction becomes more and more likely.

Should you invest £1,000 in Jpmorgan American Investment Trust Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Jpmorgan American Investment Trust Plc made the list?

See the 6 stocks

Upcoming results

Next Thursday (27 February), Rolls will announce its full-year results for 2024. It’s expected to achieve underlying operation profit ranging £2.1bn-£2.3bn, with free cash flow of £2.1bn-£2.2bn. It also plans to reinstate dividends, starting with a payout ratio of 30% of profit after tax.

All that is great and if it comes to pass, the stock could climb even further.

The risk is that if it fails to meet those expectations, investors could be spooked and the stock could take a dive. With limited new buyers left to prop up the price, the losses could be significant. That’s maybe why analysts are increasingly bearish, with an average 12-month price target of 632p — 1.4% down from today’s price. 

A more reliable, low-risk option?

Created with Highcharts 11.4.3JPMorgan American Investment Trust Plc + Rolls-Royce Plc PriceZoom1M3M6MYTD1Y5Y10YALL0www.fool.co.uk

Don’t get me wrong, Rolls is a great company that’s in a great position to keep performing well. But historically, its price has been volatile and is currently in a precarious position.

When thinking long-term, I find consistent and sustainable growth more attractive. For that, investors may want to consider JPMorgan American Investment Trust (LSE: JAM), a US-focused trust that’s delivered consistent returns for decades.

Since 2005, the share price has grown at an annualised rate of 12% a year. At the same time, Rolls has grown at an annualised rate of 10% a year. And since the JPMorgan trust is highly diversified and less prone to volatility, I’m more confident it could maintain that growth.

Stability through diversity

The fund’s top holdings are unsurprisingly dominated by US tech stocks. In fact, 25% of the fund is made up of just five stocks: Amazon, Microsoft, Meta, Nvidia and Apple.

Further down are some finance stocks like Capital One, Berkshire and Loews. All told, the portfolio’s made up of 283 holdings from around the world, spanning 11 different sectors. The level of diversification helps to ensure stable growth with low volatility.

Over the past three, five and 10 years, the fund’s annualised share price growth has consistently outperformed its net asset value (NAV).

Risks to consider

When looking at any stock, it’s important to consider the risks. While this trust has generally favourable reviews, that alone doesn’t mean it’s a good buy. When it comes to investment trusts, the risks tend to be related to how the portfolio’s balanced and managed.

Since JPMorgan American’s heavily weighted towards US stocks, an economic downturn in the States would affect it. In the same vein, any currency fluctuations between the US and the UK could have an impact on returns.

Despite these risks, I would be surprised if it underperformed Rolls-Royce over the next five years.

Should you buy Jpmorgan American Investment Trust Plc now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Rolls-Royce Plc. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top dividend stocks to consider for passive income in May

Our writer thinks these two shares are well worth checking out for investors targeting a growing stream of passive income…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

53% under its fair value, should investors consider buying this FTSE 100 banking gem right now?

This FTSE 100 bank looks extremely undervalued to me following a shift in its key banking strategy towards fee-based rather…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Under £25 now, Shell’s share price looks cheap to me anywhere below £66.43!

Shell’s share price has fallen a lot recently, but this may indicate a bargain to be had. I took a…

Read more »

UK supporters with flag
Investing Articles

5 FTSE 100 shares driving wealth in my Stocks and Shares ISA

Many FTSE 100 shares are doing very well this year in the face of upheaval. Ben McPoland highlights a cheap…

Read more »

Tesco employee helping female customer
Investing Articles

In the next 12 months, experts predict the Tesco share price will be…

Tesco’s dominant position in the UK grocery space is getting stronger, but what does that mean for its share price?…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Prediction: 12 months from now, the HSBC share price could turn £5,000 into…

With China's first-quarter GDP growth beating expectations, the HSBC share price might be primed to thrive! Here are the latest…

Read more »

Array of piggy banks in saturated colours on high colour contrast background
Investing Articles

Prediction: in the next 12 months, the Lloyds share price could climb to…

With a Supreme Court ruling expected soon, Zaven Boyrazian dives into the latest expert forecasts for the Lloyds share price…

Read more »

Branch of NatWest bank
Investing Articles

1 share to consider for those new to the stock market (and other investors too)

Our writer looks at how those wanting to start investing in the stock market could go about things. But he…

Read more »