A number of critical elements are fundamental to the sustained success and relevance of global growth trusts:
- Inherent diversification offered by such global vehicles
- Low charges
- Easy to access investment trust savings schemes
- Excellent long-term dividend history backed up with strong reserves
- Increased differentiation within the global growth trust sector itself
Being invested worldwide not only allows greater opportunities than can be accessed by specialised funds, but such diversity means, over time, global trusts are able to ride out problems afflicting individual regions.
Moreover, while international equity markets are quite closely correlated today, often the currency exposure is not. For many sterling-based private investors, global growth trusts can offer a level of overseas currency exposure which individuals would find very costly and difficult to replicate.
Low charges
Global growth investment trusts tend to be amongst the most cost-effective of collective vehicles. They have very low management charges with total expense ratios (TERs) as low as 0.4 per cent and the sectoral average being 0.8 per cent, according to AIC May 2010 figures. In comparison, OEICs and unit trusts often have TERs of over 1.5 per cent, according to Investment Management Association (IMA) May 2010 figures for average OEIC / unit trust global growth funds. This cost advantage adds up over time.
Investment trust savings scheme charges also tend to be very low. Investment plans are offered by most global growth investment trusts, typically, they have no initial or annual charges and some have no purchase or sale charges.
Easy access through simple, flexible products
Like other equities, investment trust shares can be bought through stockbrokers or share dealing firms / services. However, they can also be bought through investment trust savings schemes, including tax-efficient ISA and SIPP wrappers.
Opening a scheme can be simple and does not require an intermediary (unless advice is sought). There is usually no maximum ceiling to investment (exceptions being the regulated ISA and SIPP limits) and the schemes are extremely flexible and accessible.
Excellent long-term dividend growth record
Global growth trusts have an enviable track record of dividend increases, some having increased their annual dividends for over 40 consecutive years.
Of the top ten investment trusts with the longest record of year-on-year dividend increases, seven are global growth, according to AIC February 2010 figures.
Furthermore, should company dividends go through a lean spell, global growth trusts tend to have strong reserves available for maintaining dividends.
Increased differentiation within the global growth sector
There has been much activity in the sector as fund managers and boards worked to differentiate their trusts.
Although possible to make the case ten years ago that several of the bigger international trusts were too similar in investment style and operation, this is not the case today.
Some now focus on unconstrained stock selection, that is, avoiding index hugging and a concentrated portfolio of stock selection, while others offer a fund of funds model. Some have geared equity exposure while others are explicitly capital preservation entities.
To conclude, global growth trusts remain highly relevant and a compellingly attractive option for many investors looking to obtain overseas exposure.
John Kennedy is manager of Scottish Investment Trust. The views are his own. No recommendations are implied.