How to Choose Investments in 2024

How to Choose Investments in 2024: A Guide to Global Investment Trusts

As we move into 2024, the investment landscape continues evolving, presenting challenges and opportunities. Global Investment Trusts (ITs) have long been popular for investors seeking diversified exposure to markets worldwide. However, choosing the right investment trust can be daunting. This blog will help you understand how to evaluate trusts based on past performance, ratings, and discounts to make informed investment decisions.

1. Evaluating Past Performance

One of the most common ways of assessing an investment trust’s potential is by examining its past performance over different time horizons, such as 1, 3, and 5 years. While historical returns do not guarantee future success, they offer insight into how well a trust has weathered market conditions and adapted to economic shifts.

• 1-Year Performance: Short-term performance is influenced by recent market trends and geopolitical events. In a volatile year, such as 2023, where markets were affected by inflation, interest rate hikes, and global uncertainty, looking at the 1-year return can provide insight into how agile a trust’s strategy is.

• 3-Year Performance: This mid-term horizon allows you to see how an investment trust performs through different market cycles. A strong 3-year performance indicates that the trust has a solid investment strategy that holds up beyond short-term market fluctuations.

• 5-Year Performance: A 5-year performance view is essential for long-term investors. It reflects how well the trust has performed across varying market conditions, including bull and bear markets. Trusts consistently delivering solid returns over this period demonstrate resilience and effective management.

When comparing trusts, focus on consistent performers rather than those with erratic returns. For example, a trust that has shown steady growth over 5 years may be a better bet than one that had an exceptional year but underperformed in the following 4 years.

2. Considering Ratings

Another important factor in selecting an investment trust is the ratings provided by independent analysts and financial information companies. Ratings such as those from FE Fundinfo give investors a quick snapshot of the trust’s quality based on various factors, including risk-adjusted returns, management strength, and consistency.

• Alpha Ratings: These ratings reflect the trust’s ability to outperform the market or a relevant benchmark, adjusted for risk. Trusts with high Alpha ratings have demonstrated superior performance compared to their peers while managing risk effectively.
• Crown Ratings: Many trusts are also given a Crown rating, typically ranging from one to five stars. A five-star trust is considered top-tier, demonstrating strong risk-adjusted returns over a given period. Trusts with three stars or higher are often safer choices, as they offer a good balance of performance and risk.

When assessing ratings, it’s important to remember that while higher-rated trusts are generally more reliable, they may not always be the best option for every investor. Your individual risk tolerance and investment goals should play a key role in your decision.

3. Looking at Discounts and Premiums

Global Investment Trusts often trade at a discount or premium to their Net Asset Value (NAV). A discount occurs when the trust’s share price is lower than the value of its underlying assets, while a premium means the shares are priced higher than the NAV.

• Buying at a Discount: A trust trading at a discount can be a compelling opportunity for investors. If the underlying assets are strong and the market sentiment turns positive, the share price may reflect the NAV, potentially providing additional returns. However, it’s important to understand why the discount exists. Persistent discounts may indicate deeper concerns about the trust’s management or portfolio.
• Premiums: On the flip side, some trusts trade at a premium due to high demand. Investors believe in management quality and the underlying assets’ growth prospects. While buying at a premium may suggest a quality investment, it also means you’re paying more than the NAV, which could limit your potential upside.

In 2024, when considering trusts at discounts, focus on those with strong management teams and a clear investment strategy. Discounted trusts with solid 3- and 5-year performance and strong ratings may present a compelling buying opportunity.

4. Risk Management and Diversification

Even with a thorough evaluation of performance, ratings, and discounts, it’s crucial to maintain a diversified portfolio to manage risk. A well-balanced mix of investment trusts from different sectors and geographical regions can help smooth out the volatility in your portfolio.

Global Investment Trusts offer exposure to various asset classes, including equities, bonds, and real estate across multiple regions. This diversification is key to reducing risk, especially in unpredictable market environments. In 2024, with uncertainties like inflation and potential interest rate adjustments, diversification remains a cornerstone of any prudent investment strategy.

5. Conclusion

Choosing the right Global Investment Trust in 2024 requires a multi-faceted approach. Given the complexity of these investments, it’s important to consider seeking advice from specialists like UnaVida Wealth Management Ltd. As a firm consistently voted a top UK adviser by VouchedFor, you can be confident you’re in expert hands.

If you’d like to explore your investment options further or need tailored advice, feel free to click the button below to start a conversation with us.

Remember, investing is a long-term journey, and Global Investment Trusts can be an excellent vehicle for growing your wealth over time.