Scottish Mortgage Investment Trust (LSE: SMT) and AVI Global Trust (LSE: AGT) follow very different strategies. SMT’s growth focus has produced a long period of high returns. Conversely, a value focus has seen AGT relatively underperform.
However, with some signs investors may be cooling on growth and warming to value, which of these two investment trusts do I think is the better buy today?
Contrasting performances
The table below highlights the contrasting performances of AGT and SMT over both the short and long term.
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|
Period |
AGT performance (%) |
SMT performance (%) |
|
6 months |
16.0 |
11.6 |
|
1 year |
46.1 |
65.8 |
|
3 years annualised |
11.6 |
34.3 |
|
5 years annualised |
18.3 |
37.3 |
|
10 years annualised |
8.7 |
25.0 |
SMT has delivered two to three times the gains of AGT over three, five and 10 years. It’s also well ahead over one year, although both investment trusts have produced very strong returns in this period. Indeed, they’re rank at one and two in the Association of Investment Companies’ global category.
However, over the last six months, their positions have reversed. AGT has materially outperformed SMT. Is this merely a temporary reversal? Or could it be the start of a long period of outperformance by AGT, much as the last decade was for SMT?
A tale of two investment trusts’ strategies
AGT’s value approach is to find stocks it believes are trading at wide discounts to their intrinsic net asset values. SMT’s growth approach is to find stocks it believes have potential to deliver exceptional returns.
The two trusts’ largest equity holdings give a flavour of the kind of stocks their different approaches produce:
|
AGT top 6 holdings |
SMT top 6 holdings |
|
Oakley Capital Investments |
Tencent Holdings |
|
Third Point Investors |
Illumina |
|
Pershing Square Holdings |
ASML Holding |
|
Exor |
Amazon.com |
|
Sony Group |
Tesla |
|
Christian Dior |
Alibaba Group Holding |
It seems unlikely these investment trusts will fundamentally change their distinctive strategies. Both strategies are attractively well defined and long established. I’d put SMT and AGT among the best-in-class trusts at the extreme growth and deep value ends of the investing spectrum.
The popularity of growth and value tends to be cyclical. One may outperform the other for lengthy periods. However, I can see a good argument for having exposure to both rather than trying to time hopping between them. And by owning the best in class from growth and value, I’d hope to outperform the market over the long term.
But what if I could only choose one today?
Investment trust better buy: SMT or AGT?
Growth strategies have enjoyed a long period in the sun. And SMT has successfully identified some of the growth themes and stocks that have produced the highest returns.
Intuitively, after a such a period of dominance by growth, I’d lean towards favouring value right now. I get a nosebleed just looking at the sky-high valuations of many of SMT’s holdings! Still, it’s possible the relative underperformance of value could persist. And that SMT’s many big-concept stocks, such as Tesla, could continue to defy conventional valuation measures.
On balance though, if I had to choose only one of the two investment trusts today, I’d be inclined to pass on SMT and buy AGT. Of course, both trusts are actively managed and stock selection is important to their performances. As such, I have to accept the risk that either or both could underperform the wider market.
