Incredibly, a total of 30 investment trusts would have made me more than £1m if I had invested my full annual ISA allowance in the same trust each year, according to data from the Association of Investment Companies (AIC).

This assumes I invested my full ISA allowance on 6 April every year since ISAs were launched in 1999. In total I would have paid in £263,440 across 23 tax years.

I’m a fan of investment trusts

HgCapital Trust, which invests primarily in software and services businesses, would have turned my ISA contributions into a staggering £2,062,931 since 1999. I don’t know much about that particular fund but I’ve kept close tabs on the second and fifth-best-performing investment trusts.

Scottish Mortgage Investment Trust (LSE: SMT) and Polar Capital Technology Trust (LSE: PCT) have amazing track records. They would have transformed £263,440 into an incredible £2,046,762 and £1,555,681 respectively since 1999, AIC figures show.

Both funds built their success on the all-conquering technology sector, and I really wish I’d bought at least one of them. But I didn’t, and I wouldn’t today. Investment trends go in cycles and I suspect the tech sector that’s important to them will now struggle to repeat its fabulous success.

Scottish Mortgage, managed by Baillie Gifford, now has £13.9bn worth of assets under management. That’s a tribute to its blistering performance. At one point, it had returned a staggering 500% in five years. Yet nothing lasts forever and the king of investment trusts has fallen more than a third in the last six months.

Near-zero interest rates and loose monetary fiscal policy drove the tech boom. Investors piled into companies like Apple and Amazon even as their valuations soared, assuming they would continue to grow and deliver even bigger profits in future.

That era is drawing to a close as central bankers prepare to hike rates and taper bond purchases. Inflation is rocketing, and that will erode the real terms value of future tech company earnings. This makes today’s sky-high valuations harder to justify. That’s putting me off these two investment trusts.

I’ve got enough US tech, thank you

Scottish Mortgage has massive holdings in US tech giants Amazon, Nvidia and Tesla, and Chinese behemoths Alibaba Group and Tencent Holdings. Polar Capital is a rollcall of US tech titans. Apple, Amazon, Google owner Alphabet and Facebook owner Meta make up the top four holdings. There’s a fair bit of crossover between these two investment trusts.

I still retain exposure to US tech, through an S&P 500 tracker fund, so there’s another reason for me to shun these two tech-heavy investment trusts.

US tech giants do look slightly better value after the recent sell-off, but I’m still not tempted. I’m always wary of jumping into once fashionable sectors, for fear of jumping on the bandwagon too late.

Once the glory days are gone they rarely return. But as I said, I’m a fan of investment trusts and I’ll still buy shares in some. Now though, I’m looking for those targeting FTSE 100 value stocks instead.

The post These 2 investment trusts could have made me a millionaire. Why won’t I buy them now? appeared first on The Twelfth Magpie.

More reading

• As SpaceX stock plunges below its opening price, is it time to dump Scottish Mortgage shares?
• An AI beast just racked up 80-fold growth and is now a top holding in this FTSE 100 trust
• SpaceX doesn’t pay a dividend. So how come it may help these investors earn passive income?
• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

Harvey Jones doesn't hold any of the shares mentioned in this article. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Apple, and Tesla. 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.

The trust has suffered a 10% drop in net asset value over one year, and a 13% decline over six months, costing investors 22% since the beginning of September 2017. Following these declines, in early February the shares reached a discount to net asset value 13%, the widest gap since inception.

Having said all of the above, Patient Capital was established to invest with a long term outlook, so it shouldn’t really be judged on its performance over the past six months. Over the long term, Woodford and team are targeting a return of 10% per annum. Considering the fact that its portfolio is full of early stage and venture capital businesses, despite the recent performance, a double-digit annual return is still possible as these companies mature over time.

Nonetheless, the fact remains that this trust, as of yet, has still to produce returns for investors, which is why I would sell it and buy the HG Capital Trust (LSE: HGT) instead.

More established 

There are many similarities between these two trusts. The biggest is that they both invest in fast-growing, unquoted companies in an attempt to achieve market-beating returns for investors. 

However, HG invests in established businesses that have more predictable income streams and scope to generate better returns for investors.

Take for example the largest holding in the two trusts’ portfolios. Patient Capital’s largest holding is development stage biotech Prothena, which has no drugs currently on the market and recently lost its chief medical officer.

Meanwhile, HG’s largest holding is Scandinavian tech business Visma. This accounts for 18% of the portfolio and in the 11 years of ownership, Visma’s revenues and EBITDA have seen a compound annual growth of 17% and 23%, respectively. Visma is now positioned as one of the leading and largest SaaS companies in Europe. The two top positions in Woodford’s fund (Prothena and Oxford Nanopore), that together make up around 18% of assets, are both early-stage biotechs that have yet to produce any income.

Profit with profits 

I’m not saying Patient Capital won’t produce its targeted return for shareholders over several decades, but what I’m sure about is that the company’s approach is riskier than HG’s route of buying established businesses with room for further growth. 

The first few years of a company’s life is always the hardest, therefore buying when it’s already generating revenue and profit significantly reduces the risk to the acquirer. HG is also selling its investments at attractive multiples to generate impressive returns. Over the past year, the group’s net asset value per share increased 21.5% and cash realisations totalled £224m, of which £73m has been reinvested. Over the past 10 years, the trust has produced a compound annual return for investors of 11.7%, outperforming the FTSE All Share by 160%.

So, overall, considering its record of outperformance and value creation, as well as its different investing style, I believe HG is a much better buy than the Woodford Patient Capital Trust.

The post I’d sell Woodford Patient Capital Trust plc to buy this fast-growing investment trust appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns no share mentioned. 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.

A narrow focus pays off

Over the past five years the 71% HGT has returned has been well ahead of the 34% return posted by its target index, the FTSE All Share. The fund invests directly in unlisted companies with a focus on Northern European growth technology companies. The fund itself is fairly well diversified with over 30 investments and the top 20 of those accounting for a little over 80% of the total portfolio value.

Reassuringly, the companies it invests in are generally large, have considerable growth prospects and are also already profitable. Over the past 12 months its 20 largest holdings have recorded over £2.5bn in sales and £626m in EBITDA. Over the same period these companies have posted average sales growth of 11% and EBITDA growth of 19%.

As with all private equity funds, HGT doesn’t hold onto its portfolio companies forever and regularly divests entire holdings or sells minority stakes. In the six months to June it completed sales totalled some £134m with further divestments post-period-end. Each of these sales were struck at prices above the portfolio companies’ previous valuations, and together with rising valuations of remaining holdings, led to HGT’s net asset value (NAV) rising 12% during the period.

The fund reinvests these proceeds in new investments and also returns some of the cash to shareholders via regular dividend payouts. This year management intends to at least match the 46p paid out last year, which would work out to around a 2.7% annual yield. With a decent dividend yield, a portfolio of profitable and growing companies and a share price that is in line with the firm’s NAV, I reckon investors looking for exposure to private equity investments could do much worse than HgCapital.

And one for the income investors 

One fund paying out an even more impressive dividend is Princess Private Equity, whose dividend yield is currently hovering around 5.5%. On top of a very nice dividend, the fund also offers serious capital appreciation prospects as its share price has risen 52% over the past five years.

The fund is a bit different from HgCapital in that it has both direct investments in unlisted companies as well as investments in other private equity and venture capital funds, although the latter make up an increasingly small portion of the overall portfolio. The fund’s direct investments are highly diversified across both sector and size but are largely concentrated in Europe and North America.  

In the half year to June the firm’s NAV rose 8.8% due to rising valuations for its portfolio companies but its shares still trade at a 6% discount to their NAV. While this discount has been narrowing of late, income investors could still find Princess a keenly valued, high-yield investment option over the long term.

More of a DIY investor?

The post 2 market-beating investment trusts you could retire on appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Ian Pierce has no position in any of the shares mentioned. 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.