Top Trump

As if investors did not already have enough to worry about, Donald Trump chose the week before his second presidential inauguration to threaten punitive tariffs against NATO allies Canada and Denmark in a bid to sequester Greenland. That was in addition to similar talk about Trump imposing higher taxes on imports from the European Union and possibly seizing the Panama Canal.

No wonder City wags joke that whoever gave him an atlas for Christmas has a lot to answer for. More seriously, Trump’s second coming looks likely to create winners as well as losers across global stock markets.

Investment trusts make it convenient and cost-effective for UK shareholders of all sizes to gain exposure to the world’s biggest economy. We can share the cost of professional fund management, and diminish risk by diversification, as we seek income or growth – or a mixture of both – wherever they may arise.

While many economists argue that tariffs are bad for trade, the fact remains that all three of America’s main equity indices – the Dow Jones, Nasdaq and S&P 500 – hit record highs on the day the presidential election result was declared last November. Hopes of tax cuts, in contrast to tax hikes being imposed on Britain’s smaller and weaker economy, probably played an important part in Yankee optimism. So, too, did memories that the S&P 500 soared by 58% under the first Trump presidency, despite that ending in a global pandemic. 

Here and now, bargain-hunters may note that investment trust shares in the AIC North America sector continue to be priced an average of 21% below their net asset value (NAV). Nor do these double-digit discounts denote any lack of quality; the seven funds in this sector delivered average returns over the last decade, five years and one-year periods of 170%, 142% and 22% respectively.

To put that performance in perspective, the average returns over the same three periods across all AIC members are 125%, 27% and 9% with a typical discount to NAV of 16%. Meanwhile, the UK All Companies sector managed total returns of 104%, 9% and 10% with an average discount of 11%.

It is important to be aware that the past is not necessarily a guide to the future. However, it does provide one factual basis upon which to hazard a guess. At present, ‘home bias’ – or many British investors’ preference for UK funds - often fails to match the returns from investing internationally.

While much might change during the second Trump presidency, much may stay the same. For example, few folk expect America to lose its global lead in technology under Trump.2 and this small investor is delighted to have been a shareholder in Polar Capital Technology (stock market ticker: PCT) for more than a decade.

PCT’s top underlying holdings are the all-American graphics processing unit (GPU) or microchip-maker, Nvidia (NVDA); the software giant, Microsoft (MSFT), the Facebook owner, Meta Platforms (META) and the iPhone-maker, Apple (AAPL).

Although I have been buying the latter’s computers for 35 years, I scarcely understand what some of these tech giants do. So I am particularly grateful for PCT giving me access to them and intend to continue buying this investment trust’s shares – especially while they trade at 12% below NAV.

It’s only fair to add that Allianz Technology (ATT) did even better than PCT over all three standard periods. ATT generated eye-stretching total returns of 642%, 149% and 44% but continues to be priced 9% below NAV.

Elsewhere, American equities represent 70% of the underlying assets of Worldwide Healthcare (WWH), another investment trust where I have been a shareholder for more than a decade. Perhaps more surprisingly, 73% of the ‘global smaller companies’ trust, Edinburgh Worldwide (EWI), is invested in America.

That includes 12.3% of EWI’s assets allocated to Space Exploration Technologies, founded by the billionaire Elon Musk. SpaceX has nearly 7,000 satellites in low earth orbit, bringing mobile telephony and the internet to many parts of the world beyond the reach of cable.

Enthusiasts claim SpaceX has the potential to replace every internet services provider on this planet. Those hopes cannot be harmed by Musk’s unofficial status as Trump’s “first buddy”.

So this small shareholder hopes EWI survives a speculative approach from an American hedge fund and is allowed to continue serving long-term investors, rather than short-term speculators. Certainly, every shareholder ought to exercise their vote on these proposals and Britain’s biggest investment platforms make it easy to do so.

Either way, with Europe suffering its worst war since 1945 and shocking bloodshed in the Middle East, investors could be forgiven for looking through controversies surrounding Trump and Musk to consider opportunities on the other side of the Atlantic.