Our columnist explains how investors can access US shares, including the technology titans, at knock-down prices.
Next Tuesday’s presidential election in America presents alternative risks and rewards for shareholders. But investment trusts focused on the world’s biggest economy have beaten British and global averages over the short, medium and long term, while continuing to trade at substantial discounts to net asset values (NAVs).
So bargain-hunters seeking growth, income or a mixture of both should consider binary outcomes from the clash between Donald Trump and Joe Biden on 3 November. Some shareholders in the Association of Investment Companies (AIC) North America sector might settle for “business as usual” and Trump’s re-election.
Since Trump won on 8 November 2016, the Standard & Poor’s index, a broad measure of the American market, has risen by 63% (at the time of writing on 27 October). New York’s Nasdaq technology benchmark has performed even better, soaring by 146% over the same period, according to Bloomberg.
By dismal contrast, the FTSE 100 index of Britain’s biggest shares has shrunk by 13%. Explanations include uncertainty about Brexit, plus a poor-to-middling coronavirus crisis and too few UK technology stocks.
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Investment trusts on both sides of the Atlantic are priced accordingly. But a Biden win, now the probability favoured by most pollsters and bookies, could disrupt the status quo for good or ill because he favours higher taxes and a $2 trillion (£1.5 trillion) government intervention to accelerate America’s transition from fossil fuels to renewable energy.
Here and now, investment trusts in the AIC North America sector are priced 6.4% below their average NAV, compared to a global discount of 3.7% for all types of conventional investment trusts and 6.5% for UK All Companies. Meanwhile the American pooled funds have delivered average returns over the last one, five and 10-year periods of 17%, 87% and 215%, respectively.
That beats comparable returns from all types of conventional trusts (excluding Venture Capital Trusts) over all three periods, which were up 8.6%, 58% and 156%, respectively.
UK trusts lagged behind over all these periods with the UK All Companies sector shrinking shareholders’ capital by an average of minus 9.7%, plus positive returns of 25% and 143%, respectively, according to Morningstar via the AIC.
JPMorgan American (LSE: JAM) led the way over the last five years with total returns of 105% from a portfolio where the top three holdings are technology titans Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). But this £1.2 billion giant continues to trade at a 5% discount to NAV, offering jam today with dividend income of 1.2%.
Better still, its dividend growth has risen by an impressive annual average of 15% over the last five years. If this rate of increase is maintained - which is not guaranteed - investors’ income would double in less than five years.
Canadian General Investments (LSE: CGI) ranks second in this sector over that period with total returns of 84% and a Maple syrup-sweet dividend yield of 4.4%, growing by nearly 11% per annum.
This trust is not a member of the AIC. Perhaps due to its low profile, CGI continues to trade at a deep discount of 35% below its NAV.
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Elsewhere, BlackRock North American Income (LSE: BRNA) is a relative tiddler, with total assets of £130 million, albeit run by the world’s biggest fund manager. Five-year returns are respectable at 67% and boosted by a mouth-watering dividend yield of 5.3%, with five-year annual dividend growth of 14.9%.
BRNA’s biggest holding is the communications giant Verizon (NYSE:VZ), followed by Bank of America (NYSE:BAC) and Citigroup (NYSE:C). Following these financial institutions, it is surprising to find the French pharmaceutical group, Sanofi (EURONEXT:SAN). The trust trades 7.6% below NAV.
Over the last year, all the above investment trusts were left in the dust by stellar returns of 108% from Baillie Gifford US Growth (LSE:USA) where top holdings are the electric car giant Tesla (NASDAQ:TSLA); Shopify and Amazon. That propelled shares in this trust to trade at a premium of 6.7% above their NAV despite a very short track record - it was launched in 2018 - and no dividend income.
Meanwhile, investors in the AIC’s North America Smaller Companies sector have not been rewarded recently for taking additional risks with corporate tiddlers. This two-trust sector is led by JPMorgan US Smaller Companies (LSE: JUSC) with relatively modest returns of 2.3% over the last year and a more satisfactory 84% and 324% over five and 10 years.
Despite my long-term holding in JUSC, it is hard to argue that its discount of 7.4% is especially attractive with a negligible yield of 0.8% and no growth in income. Blue-chip technology trusts look a better bet for those who expect Uncle Sam to continue to prosper, whoever wins next week.
Ian Cowie holds shares in Apple (AAPL), JPMorgan US Smaller Companies (JUSC) and Verizon (VZ) as part of a diversified global portfolio.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
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