4 investment trusts for your ISA this year
Investment trusts have been around for more than 150 years — and their unique qualities make them...
When I was twenty, I was living in Genoa, Italy. I was on a work placement from university, having the time of my life.
I was also a millionaire – mainly thanks to the fact that £1 was worth 2,500 Lira in those days, so my monthly wage of £400 looked very impressive! It was a time before the euro, mobile phones, emails, and even really the internet. Yes, I’m that old.
That year, I travelled the country, didn’t think twice about starting a night out after 10pm and made some life-long friends. What I wasn’t doing was trading shares.
Today, around 20% of stock trading is conducted by retail investors and that figure has doubled over the past year, as trading apps like Robinhood and e-Toro have seen a surge in popularity – it’s estimated that 13 million people currently use Robinhood alone*.
Designed to unlock the market to investors that were previously put off by high charges and minimum account balances, these ‘free’ apps make their money through order flows.
These apps have also ‘gamified’ investing, according to Morgan Housel, the author of The Psychology of Money, who says there are stories of 19 and 20-year-olds trading up to 5,000 times a month.
To put this into context, Mick Dillion, manager of Brown Advisory Global Leaders, who was discussing behavioural finance with Morgan on a recent podcast, trades once or twice a fortnight in the fund.
“The likes of Robinhood etc have intentionally tried to gamify investing,” said Morgan. “They’re not trying to push long-term investing in the slightest. They make money by selling your trades and therefore they have every incentive in the world to get you to keep hitting the button: buy, sell, buy, sell, buy sell.
“But it’s all about the short-term rewards – especially for young people. It’s hard for a 20-year-old to grasp the fact that if they do something today, they’ll be better off when they are 65 years old.
“The long-termism of investing doesn’t sit right with them when they know that, for example, if they go to the gym, they’ll ache tomorrow and see results in a few weeks… If you are asking them to invest and let compounding do its thing over the next 10-20 years – that’s their entire lifetime so far. But it should be about the long-term because, in the investing world, young people are ‘time billionaires’.”
This discussion got me thinking: what if a year later – having spent a further six months in France, graduated and then started my first job at Columbia Threadneedle – I’d invested my very first annual bonus instead of frittering it away? What could £2,500 be worth today?
A number of Elite Rated funds have a 25-year-plus track record. And, coincidentally, four of the ten top performers all invest specifically in European equities…
Scottish Mortgage Investment Trust would have been the most rewarding pick, turning the initial investment into a pot of money worth £95,563.69**.
The second most rewarding would have been Barings Europe Select Trust (£74,907.28**) and third would have been TR Property Investment Trust (£70,244.07**).
Threadneedle European Select – which I did invest in a few years later when I opened my first ISA – would have been the 8th best choice turning my investment into £49,192.47**.
|Rank||Fund/Trust||An initial investment of £2,500 would today** be worth:|
|1||Scottish Mortgage Investment Trust||£95,563.69|
|2||Barings Europe Select Trust||£74,907.28|
|3||TR Property Investment Trust||£70,244.07|
|5||Baillie Gifford Global Discovery||£62,190.32|
|6||Fidelity Special Values||£57,705.52|
|7||AXA Framlington American Growth||£50,876.71|
|8||Threadneedle European Select||£49,192.47|
|9||Janus Henderson European Selected Opportunities||£40,491.85|
|10||Invesco China Equity||£37,154.56|
I’m certainly not a billionaire. I’m not even a (sterling) millionaire. But time is still on my side, with a good 20 years left to invest. My children have even better odds of achieving one of these milestones, as I opened a pension for them when they were born.
If stock markets managed to match their annual average of 10%^ over the past 50 years in the next 50 years, their £2,500 investments could be worth more than £1,225,920^^ at age 65.
Now, if I can only get them off whichever app they are using to tell them about it…
*Source: The Business of Apps, 6 May 2021
**Source: FE fundinfo, total returns in sterling, 29 May 1995 to 29 May 2021
^Source: The Motley Fool