Yahoo Finance 2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA
Investment trusts can be very handy when building a new Stocks and Shares ISA portfolio. They typically invest in a range of stocks, bonds, or property. Therefore, they offer instant diversification and can help spread risk.
If I were just starting out today, I’d invest in this pair.
High-yield dividends
First up is BBGI Global Infrastructure (LSE: BBGI). This is a FTSE 250 infrastructure investment company that has 56 assets in the UK, US, Europe and Australia.
These include hospitals, schools, motorways, bridges, and police stations. The fund says these assets “provide high-quality, stable, predictable and inflation-linked cash flows“.
So the name of the game here is income. Currently, BBGI pays a dividend of 7.93p per share, which translates into an attractive 6.2% yield.
Better still, the fund is targeting a dividend of 8.4p per share for 2024, which would represent 6% year-on-year growth. This puts the forward-looking yield at 6.5%.
Now, one potential risk here is interest rates staying higher for longer. This scenario would make it more expensive to finance new infrastructure projects, limiting the growth of its portfolio.
It would also likely keep a lid on any share price growth, as higher rates make alternative (and less risky) asset classes more attractive to investors.
Nevertheless, BBGI estimates that the existing portfolio could continue generating a rising dividend for the next 15 years, even without further acquisitions.
Meanwhile, the shares are trading at a 12.5% discount to the net asset value (NAV) of the trust. When interest rates were lower, they traded at a premium due to the predictable cash flows and high-quality nature of the assets.
Therefore, I think today’s share price of 127p could potentially provide a great entry point for patient Fools.
Transformational growth
Next, I’d go with Schiehallion Fund (LSE: MNTN). This trust is managed by Baillie Gifford and invests in later stage private businesses that it thinks have “transformational growth potential” and are likely to go public.
The stock is down 54% in two years after investors shied away from perceived riskier assets, especially private companies. It’s now trading at a massive 25% discount to NAV.
However, looking at the top of portfolio, I doubt the shares will be down forever.
Top 10 Schiehallion holdings
% of total assets | |
Space Exploration Technologies (SpaceX) | 7.2% |
Wise | 5.7% |
ByteDance | 5.2% |
Bending Spoons | 4.8% |
Affirm | 3.9% |
Daily Hunt | 3.3% |
Brex | 3.3% |
McMakler | 3.0% |
Databricks | 2.8% |
Wayve | 2.7% |
Last year, the average revenue growth rate for the portfolio’s top five holdings was 48%, with average gross margins of 57%. Each company is generating cash and three of them are already profitable.
However, one holding that’s currently in the headlines for the wrong reasons is ByteDance, the Chinese parent company of TikTok. The latest news is that the US has passed a bill that could lead to a TikTok ban.
If so, this might cause some share price volatility as ByteDance’s valuation in the private market may well suffer. Yet it’s important to remember that the vast majority of ByteDance’s profits come from its Toutiao and Douyin apps in China.
Another holding that excites me is internet payments company Stripe. According to Baillie Gifford, it surpassed $1trn in total payment volume (TPV) last year.
This means that the TPV of businesses that are powered by Stripe is 1% of global GDP!
Investing in Schiehallion shares would give me discounted exposure to game-changing firms like this.
The post 2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA appeared first on The Motley Fool UK.
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Ben McPoland has positions in Schiehallion Fund. 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.
Motley Fool UK 2024
