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3 investment trusts I’d buy over Scottish Mortgage

Edward Sheldon, CFA
·4-min read
Businessman pulling out wooden brick from toppling stack
Businessman pulling out wooden brick from toppling stack

Scottish Mortgage (LSE: SMT) is an investment trust I hold in high regard. Since I bought the trust for my own portfolio a few years ago, it has delivered amazing returns.

Having said that, I think there are better investment trusts to buy right now from a risk/reward perspective. Here’s a look at three growth-focused trusts I believe are lower risk than SMT at present.

Scottish Mortgage: a higher-risk trust

One thing that concerns me about Scottish Mortgage Investment Trust is that it has large positions in stocks that many investors believe are in ‘bubble’ territory at present. At 31 December, for example, 8.9% of the trust was invested in Tesla, which is up about 670% over the last year. Meanwhile, 4.5% was invested in Chinese electric vehicle manufacturer NIO. It’s up about 1,000% over the last year.

Given these large weightings in expensive stocks, I think a safer investment trust right now is Monks. This is a global equity trust that’s managed by the same investment firm as SMT – Baillie Gifford. The difference is Monks doesn’t take the same kind of large bets on stocks that SMT does. Tesla, for example, was just 1.9% of the portfolio at 31 December. This means stock-specific risk is much lower.

The performance of this trust has still been very good. Over the last five years, its NAV has risen 174%. Overall, I think it’s a great trust for global equity exposure.

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Risk versus reward

Another global equity trust I believe offers an attractive risk/reward proposition at the moment is Smithson. This is a mid-cap/small-cap offering from Fundsmith.

Like the top-performing Fundsmith Equity fund, this trusts focuses on high-quality stocks with superior operating numbers. This approach to investing reduces risk significantly. Currently, the top holdings here include Rightmove, barcode reading company Cognex, and engineering software firm Ansys.

Smithson has performed well since its launch in 2018. Last year, the trust’s NAV rose 31.4%, beating its benchmark comfortably. I think it has the potential to keep outperforming while keeping risk at a lower level than Scottish Mortgage.

This trust has outperformed Scottish Mortgage

Finally, I also like the Allianz Technology Trust (LSE: ATT). Like Scottish Mortgage, this trust has a heavy focus on US tech stocks. However, its portfolio looks very different to that of SMT.

At 31 December, for example, the top holding was Alphabet (Google). This is a tech stock I believe actually offers decent value right now. Meanwhile, Apple and Samsung were also in the top 10 holdings at the end of December. Overall, I see this trust as a less risky play on technology compared to Scottish Mortgage.

ATT’s performance has been excellent in the recent past. For the five-year period to the end of November, its share price rose 361%. That means it actually outperformed Scottish Mortgage, which returned 352% over the same period. All things considered, I think this is a fantastic investment trust for global technology exposure.

In conclusion, I still like Scottish Mortgage Investment Trust. I definitely plan to keep it in my portfolio. However, looking at the risks, I think there are better trusts to buy right now.

The post 3 investment trusts I’d buy over Scottish Mortgage appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Alphabet, Apple, Scottish Mortgage Investment Trust, Rightmove, Smithson and has a position in Fundsmith Equity. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Apple, and Tesla. The Motley Fool UK has recommended Rightmove. 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 2021