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The UK stock market’s packed with investments trusts, offering plenty of choices for Stocks and Shares ISA investors.
Here, I want to highlight two from the FTSE 100 that I hold in my own portfolio. I think both are worth considering due to their unique characteristics.
Growth trust
The first one is Scottish Mortgage Investment Trust (LSE: SMT), whose aim is to invest in the world’s most transformational growth companies. It differs from others in its ability to invest in private firms like SpaceX, Stripe, and TikTok owner ByteDance.
On 22 May, we got an update on performance when the trust released its annual report. For the year ended 31 March, it achieved a net asset value (NAV) total return of 11.2%, easily outperforming the FTSE All-World Index‘s 5.5% return.
Manager Tom Slater said: “Many of the themes we’ve followed for a decade such as digital platforms, AI, electrification and personalised medicine are translating into tangible results.”
Meta Platforms and Spotify helped drive performance, rising 16% and 104% respectively. The former’s embedding artificial intelligence (AI) more deeply into its products, helping keep users on Facebook and Instagram for longer. Meanwhile, Spotify’s using AI to personalise content and create a broader ecosystem.
Unfortunately though, the Scottish Mortgage share price only rose 6% over this period. This was because the NAV discount widened from 4.5% to 9%, despite the trust buying back 210m shares at a cost of nearly £2bn.
I’d say this remains a key risk — the discount could widen further despite strong underlying portfolio performance.
Another thing I’ll be monitoring is performance. In this period, it was solid and over a decade it has been fantastic (NAV return of 320% versus 182% for the FTSE All-World). However, the trust’s underperforming over three- and five-year periods, which is disappointing.
Overall though, I remain bullish on Scottish Mortgage’s prospects in today’s digital age. There are many world-class growth companies in the portfolio, while I’ve been impressed with some of the newer picks (China’s BYD and France’s Hermès).
With Scottish Mortgage shares currently trading at a 10.5% discount to NAV, I think they’re well worth considering.
Hedge fund
Pershing Square Holdings (LSE: PSH) is a different beast. This trust gives investors exposure to the hedge fund run by star stock-picker Bill Ackman.
Unlike Scottish Mortgage, which holds around 100 stocks, the Pershing Square portfolio is very concentrated. It only has 10-15 holdings at any time. This does make it higher risk, as a couple of duds can really drag overall performance.
That said, the share price has more than doubled over the past five years, demolishing the FTSE 100’s return in the process. I think the stock’s still worth considering for two main reasons.
First, the discount to NAV here is 35%. While this trust usually trades at a wide discount, that looks extreme to me, suggesting there’s a lot of potential value on offer. Top holdings include ridesharing giant Uber, Google and YouTube owner Alphabet, and asset manager Brookfield.
Next, Ackman specialises in bagging bargains when markets are very choppy, like today. I expect he’ll have no shortage of opportunities crossing his desk, potentially setting Pershing Square up for continued outperformance in the years ahead.
