Ian Cowie: why these trusts will deliver in 2025

Can artificial intelligence (AI) beat natural stupidity in 2025? Will AI increase productivity and profits sufficiently to justify soaring “Magnificent Seven” share prices? Can science fiction turn into commercial fact and generate capital growth from the stratosphere? Will the world’s biggest democracy rival its largest dictatorship? Can smaller companies ever catch up with bigger blue-chips?

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These are the key questions this small investor hopes will unlock capital gains and income during 2025. Here are the investment trusts that I hope will help me do so…

Alliance Witan Ord (LSE:ALW) and F&C Investment Trust Ord (LSE:FCIT) both offer exposure to some of the so-called Magnificent Seven shares - including Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA) - that generated more than a third of the total return from the Standard & Poor’s 500 index at the mid-point last year. Both ALW and FCIT are close to my wallet because these are the global funds in which I bought shares for my grandchildren, Charlie and Cressida.

More importantly for investors, both have long records of delivering good capital growth and rising dividend income. ALW generated total returns over the past decade, five years and one-year periods of 221%, 62% and 13% respectively, according to independent statisticians Morningstar. FCIT delivered 248%, 57% and 17% over the same periods.

Both ALW and FCIT are also “dividend heroes”, having increased shareholders’ income every year, without fail, for a remarkable 57 and 53 years respectively. So, with annual charges of 0.62% and 0.64%, either fund makes an attractive candidate to gain professionally managed exposure to the commercialisation of AI and other forms of technological innovation.

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Nearly 7,000 Starlink satellites in low Earth orbit (LEO) provide an extreme example of how technology is changing our lives and investment opportunities. They have already brought internet access and mobile telephony to many parts of this planet that were never likely to be linked to cable.

Not so long ago, that would have seemed the stuff of fiction. But it has become a fact and Starlink aims to launch another 42,000 LEO satellites to extend its scope and present a growing challenge to every internet services provider (ISP) on this planet.

Sadly, Starlink and its parent, Space Exploration Technologies or SpaceX, are not listed on any stock exchange. However, their founder, Elon Musk, recently raised fresh capital from institutional and very wealthy investors that valued the business at $350 billion (£280 billion).

Fortunately, ordinary mortals can gain exposure to both these extraterrestrial enterprises via Baillie Gifford-managed investment trusts, including Edinburgh Worldwide Ord (LSE:EWI) and Scottish Mortgage Ord (LSE:SMT). Over the standard three periods, EWI delivered total returns of 140%, minus 4% and a positive 20%, while SMT pushed out 305%, 64% and 17%.

Of these two funds, I prefer EWI because it has more exposure to SpaceX at 12% of the investment trust’s total assets and less exposure to China, which the outgoing American president Joe Biden has accused of “genocide” because of forced labour camps where more than a million Uyghurs are incarcerated.

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Before anyone accuses me of being anti-China, let me point out that I was investing there more than 20 years ago, after a couple of business trips to Shanghai and Shenzhen in the 1990s. I would have continued doing so, had the news about human rights abuses and the ‘dictator for life’, Xi Jinping, not got worse and worse.

More positively, active investors who like to see our money make a difference for the better, in however small a way, might consider backing China’s great rival among emerging markets: India. Investment trusts including India Capital Growth Ord (LSE:IGC) and JPMorgan Indian Ord (LSE:JII) give me exposure to economic growth in the world’s biggest democracy.

Total returns over the usual periods were 216%, 169% and 10% from IGC, while JII generated 108%, 38% and 10%. It’s only fair to add that both were beaten over the past year by abrdn New India Investment Trust Ord (LSE:ANII) and Ashoka India Equity Investment Ord (LSE:AIE), which delivered 24% and 23% respectively. However, JII was my very first 10-bagger, or share whose price soared by more than 10 times after I invested in 1996, and I hope that 2024 was a relatively fallow year for IGC from which it will soon recover.

Interestingly, IGC focuses on smaller companies on the subcontinent and its expertise in this sector has given it an edge in the past. Rudyard Kipling, who was born in what was then called Bombay and is now known as Mumbai, said “elephants can’t gallop” to suggest that smaller creatures - and companies - can prove more nimble.

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The great small-cap investor Jim Slater used the same phrase to point out that it is easier to double profits at a small business than at a big one. Much the same holds true in the world’s largest economy, where JPMorgan US Smaller Companies Ord (LSE:JUSC) has beaten its only rival, Brown Advisory US Smaller Companies Ord (LSE:BASC) over all the standard three periods.

More importantly for investors today, JUSC could profit from incoming US president Donald Trump and his plans to impose tariffs or taxes on foreign imports. Smaller companies tend to be more focused on domestic demand and have less exposure to the trade war that Trump’s tariffs seem set to provoke. Here and now, JUSC’s returns over the usual three periods are 191%, 40% and 18%.

Returning to where we began, my answer to all the questions posed at the start of this column is “yes”. More specifically, ALW, EWI, IGC and JUSC enable me to put my views into practice. Perennial pessimism might be the easiest way to simulate wisdom about the stock market but it ain’t the way to make money. So, I intend to continue being optimistic and fully invested. Happy New Year!

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Edinburgh Worldwide (EWI), India Capital Growth (IGC), JPMorgan US Smaller Companies (JUSC) and Microsoft (MSFT) as part of a globally diversified portfolio of investment trusts and other shares.