Investment trusts don’t provide total protection from stock market crashes. What they can do, however, is cushion the blow through diversification across asset types.
These benefits are worth special consideration today as speculation of a market downturn grows. Predicting the timing of a market downturn is a notoriously difficult business. But it pays to be prepared.
Of course investment trusts aren’t just a tool to manage risk. Many top trusts have successfully leveraged the expertise of their managers down the years, delivering returns that outperform the broader market.
With this in mind, here are three to consider for today’s uncertain landscape and beyond.
2 top contenders
The Golden Prospect Precious Metals (LSE: GPM) trust is perhaps the ultimate safe-haven asset in tough times. Yet its returns have been anything but conservative — over the past decade, it’s delivered an average annual return of 15.1%.
That smashes the corresponding returns of both the FTSE 100 and FTSE 250 indexes, of 8.5% and 5.7%, respectively.
Golden Prospect’s thrived as gold prices have gone from strength to strength. The business invests in 70 different gold producers, which spreads out — if not totally eliminates — the operational risks that come with metals mining.
Gold miners typically enjoy stable costs, which means even small gold price changes can drive profits sharply higher. A bright outlook for bullion prices suggests this trust could continue to deliver.
The Scottish American Investment Company is another top trust to consider, in my view. The annual return here is lower but still an impressive 9.7%.
Roughly 90% is tied up in a range of global shares, from technology stocks like Microsoft and Apple to insurers like Admiral and drugs developers including Novo Nordisk. It holds 62 companies in total, allowing it to harness the power of the stock market but in a way that effectively spreads risk.
On top of this, Scottish American holds a number of classic defensive assets to give it stability across the economic cycle. This includes property alongside government and corporate bonds. But as with other shares-focused trusts, it can still experience volatility at times.
A trust that’s on my radar
The F&C Investment Trust (LSE:FCIT) is one I’m currently considering for my own portfolio. The average annual return here is 11.8% over the last 10 years.
It holds an even higher number of global companies, at 356, which provides still superior diversification. Furthermore, it also holds a large contingent of US tech shares, including the world’s first $4trn company Nvidia.
On the downside, this can leave it more exposed to downturns than other diversified trusts, given the cyclical nature of tech demand. But as its stunning long-term returns show, it’s an approach that can deliver robust growth.
F&C’s record of 54 years of sustained dividend increases underline its strength irrespective of economic conditions. On balance, I think it could — like those other investment trusts — be one of the best diversified assets to consider right now.
