27th February 2013
The Association of Investment Companies has asked financial advisers and brokers who have a good knowledge of investment trusts which they would recommend for both cautious and adventurous investors this Isa season. Mindful Money reports them below.
Advisers’ cautious ISA recommendations
Wayne Evans, Financial Planner, Heron House Financial Management, recommends Personal Assets investment trust. He says: “This trust emphasises its aims of preserving and growing capital in that order. It has a good mix of quality companies both in the UK and overseas, inflation proof bonds and a large exposure to both physical gold and gold mining shares. It will underperform in strongly rising markets which we have experienced of late, but is a good defensive core holding in more uncertain times. It has an excellent long-term track record. The manager Sebastian Lyon of Troy Asset Management has a good and deserved reputation for managing more defensive funds.”
Jason Hollands, Managing Director Business & Communications at BestInvest suggests RIT Capital Partners. He says: “For a more cautious investor looking for a broad global exposure across listed equities, private equity, real assets and currencies, we like RIT Capital Partners as a “one stop” shop. The trust provides shareholders with a good spread across geographies and currencies, is long-term in its investment approach and does not flit around with fashion. The trust combines both in-house managed sub-portfolios and a number of high quality external asset managers, traditional and absolute return, who are not generally available directly to most private investors. The board, chaired by Lord Rothschild, has also made a number of interesting private equity investments both directly, such as US cloud technology firm Dropbox, and via specialist funds.”
Francis Klonowski, Financial Planner at Klonowski and Co. recommends Finsbury Growth & Income. He says: “The trust aims to generate income and capital growth above the FTSE-100 index, through investing mainly in UK listed companies – an aim it has achieved by a considerable margin over five and ten years. It has been run for over twelve years by management company Lindsell Train, whose co-founder Nick Train also has the quaint sounding job of investment adviser to the Worshipful Company of Saddlers. The trust has a concentrated portfolio of around thirty stocks, with a low turnover – which helps to reduce costs. Ongoing charges are 0.94% pa. It currently trades at par to net asset value, but this shouldn’t deter investors from such a well-run trust.”
John Dance, Investment Manager, Vertem Asset Management, recommends HICL Infrastructure. He says: “HICL predominantly invests in PFI and similar infrastructure projects, the majority of which are in their operational phase (rather than in construction/development). It offers an attractive yield of just over 5.5% and its income is relatively stable due to long term contracts with local authorities, government departments and similar. The capital value of assets and therefore its NAV tend to be fairly stable which suits a cautious investor, and as the terms of its leases tend to be inflation linked there is a catalyst for both capital growth and increasing income from the trust for shareholders. This could be particularly relevant if central banks and the Bank of England in particular allow inflation to rise as a means of generating nominal GDP growth and economic activity.
Advisers’ adventurous ISA recommendations
Wayne Evans, Financial Planner, Heron House Financial Management, recommends Graphite Enterprise investment trust. He says: “This private equity fund has had a good couple of years returning above 30% return last year, but is still on a discount of 24%. Renewed confidence in the private equity sector could see this discount falling further. Its main focus is on UK and European private equity although it does have some exposure to the US. Although private equity is often seen as high risk, Graphite has a very experienced team with a good track record and reduces risk by holding a number of private equity funds as well as direct holdings.”
Francis Klonowski, Financial Planner at Klonowski and Co. also recommends Graphite Enterprise. He says: “It comes under the “Private Equity” category, aiming to provide investors with long-term capital growth by investing in unquoted companies – either directly in such companies, or indirectly through private equity funds. The management team has been together for fifteen years. They have built a widely diversified portfolio across European private equity markets, with over 300 underlying companies. Its performance is down slightly over five years, but averages 10% pa over the past three years. It currently trades at a substantial discount to NAV, which could make it a real bargain for investors.”
Jason Hollands, Managing Director Business & Communications at BestInvest suggests Advance Developing Markets and Genesis Emerging Markets. He says: “For an adventurous investor we feel emerging market valuations look attractive at the moment. Over the last couple of years markets have been dogged by concerns over a possible collapse of the Euro, the US fiscal cliff and a hard landing for the Chinese economy. As a result there has been a general pull back from “risky” assets, so emerging market stocks have been progressively de-rated to the point where emerging markets look cheap compared to the long-term trend. Meanwhile, some of these big picture concerns have eased, so we expect to see improving capital flows to emerging markets. We like Advance Developing Markets, which takes a fund of funds approach, targeting shares in well managed closed-end funds when they trade at discounts. With shares in Advance Developing Markets currently trading at a discount to NAV we think the trust could benefit on a number of levels from a re-rating in emerging equities while also providing access to a diverse portfolio of strong investment companies.”
“We also like the Guernsey registered, London-listed Genesis Emerging Markets which is trading a tad below NAV. The portfolio is well diversified with half of it invested in Asia. The China exposure is just 13% which is conservative and a factor in the fund’s favour as we have concerns about the Chinese banking system.”
John Dance, Investment Manager, Vertem Asset Management recommends Real Estate Credit Investment. He says: “The trust predominantly invests in asset backed securities such as European real estate bonds. Whilst credit spreads have tightened at a sovereign level in Europe many, arguably more secure, commercial and residential mortgage backed securities remain dislocated in terms of their valuation, return and credit profile, in many cases even versus high yield bonds. In our view policy action and investor appetite should see these spreads tighten and enhance NAV performance. Meanwhile, a 10% discount to NAV could also help the shares themselves, though this has tightened from 30% plus in recent months.”