It is annual review time for our investment trust tips. Here’s the line-up for both portfolios for 2021-22.
In the following annual review, we are not making any changes to the conservative portfolio but feel compelled to switch two holdings in the adventurous version.
Note: all data below was derived from figures provided by FE Analytics, the Association of Investment Companies (AiC) and company factsheets. Performance figures to 30 June 2021.
A great year for the trust tips portfolios
|% total return after|
|3 months||6 months||1 year||3 years||5 years||Aug '14|
|FTSE All-Share index||5.6||11.1||21.5||6.3||36.9||43.0|
|FTSE All-World index||7.2||11.2||24.6||43.5||91.0||137.6|
Notes: performance of the portfolios as at 30 June 2021, before deduction of underlying trading charges. Data source: FE Analytics.
- How our 2020-21 investment trust tips fared
- Trust tips: adventurous and conservative choices annual review 2020
- Funds versus investment trusts: the key differences
Conservative portfolio for more cautious investors
Bankers (LSE:BNKR) is a low-cost, globally diversified £1.5 billion trust that aims to achieve long-term capital growth in excess of the FTSE World Index. It has investments in around 180 companies. It also aims to provide annual dividend growth greater than UK inflation. In the last financial year to 31 October 2020, the dividend was increased for the 54th consecutive year.
Bankers has marginally underperformed the benchmark over the past 10 years, but this can be attributed to a relatively low weighting to the booming US stock market. However, its performance stacks up well against its closest peers, particularly Witan and Alliance Trust.
Alex Crooke has managed the trust since 2003 and is responsible for the global asset allocation of the trust, which is split into six portfolios, with 20 to 30 holdings in each, and an emphasis on cash-generative businesses. Stockbroker Winterflood regards the trust as a “core, long-term global equities savings vehicle” and we are retaining the trust in the portfolio.
UK equity income
With lead manager Francis Brooke stepping back from active fund management of Troy Income & Growth (LSE:TIGT) early next year we were inclined to swap the trust for another with better recent performance. This had been impacted by the decision last year to rebase the trust’s dividend to a level from which growth can resume and the fact that it tends to underperform in strongly rising markets.
However, various attributes persuade us to retain the £251 million trust for now. Chief among these are its current yield of 3.1%, with well-covered dividends that are paid quarterly, its low volatility, a tight discount control mechanism and its ability to typically outperform in difficult market conditions.
Co-manager Hugo Ure has been joined by Blake Hutchins (who will also become lead manager of sister fund Trojan Income) and will continue the trust’s cautious approach of focusing on defensive, capital-light companies that are not reliant on the economic cycle and can grow their dividends over time.
UK smaller companies
In last year’s annual review we pointed out that BlackRock Throgmorton Trust (LSE:THRG) “must continue to perform exceptionally well to justify its premium rating”. It has ended the period under review as the best performer among all 20 trusts in the cautious and adventurous portfolios, with a 67.7% return. That places it in the second quartile of trusts in the 24-strong UK smaller companies sector, but its 242.3% return over five years is exceptionally good.
Manager Dan Whitestone can invest up to 30% of the trust’s assets in both short and long contracts for difference (CFDs), which theoretically enables him to make the most of rising and falling markets.
The market capitalisation has grown to £833 million but total assets are £1.1 billion, which reflects the 22% gearing that the CFD exposure provides. That may raise a few eyebrows with regards to suitability for this conservative portfolio. However, Whitestone caps exposure of individual companies to no more that 3% of assets, which limits company-specific risk.
He says: “We remain very positive on the investments we have made and expect great things over the coming periods as they deliver on their promise. We also believe ongoing industry pressures and business model frailties will be exposed for the struggling companies in our short book as normality returns.”
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We introduced Henderson EuroTrust (LSE:HNE) to the portfolio in the last annual review after an impressive performance from Jamie Ross, who had been elevated to lead manager in February 2019.
Last year he warned that his strategy of investing in “high-quality, high-return and resilient companies, or companies that I think can one day meet this criteria” might mean the trust could lag when economic sentiment is strong. That has proved to be the case with the 24.2% return over the past year putting the trust in sixth place among eight of its peers in the Europe sector. Over five years, the investment approach of this £318 mullion trust has garnered a 106.4% return, comparatively better than most of its peers and outperformed the FTSE World Europe ex-UK Index benchmark.
Jonathan Simon and Tim Parton, who took charge of JPMorgan American (LSE:JAM) in May 2019, have done a great job of combining value and growth investment disciplines, resulting in a 37.6% return over the past year, nearly double the return of the S&P 500 index. Returns over three and five years are ahead of the benchmark index.
The 40-odd large capitalisation holdings are the duo’s best ideas from a good spread of market sectors, with a modicum of exposure to smaller companies.
We see no reason to seek alternatives to JPMorgan Emerging Markets (LSE:JMG), after lead manager Austin Forey built on his 27-year record of managing JMG with another solid performance over the past year. The 36.2% return for this ii Super 60 constituent was around 50% better than the benchmark MSCI Emerging Markets Index, while returns over three, five and 10 years also compare very favourably, particularly over three years.
Forey has since been joined by John Citron as assistant manager, but the firm has downplayed the idea of this being early succession planning. Citron has been at JPMorgan for 13 years and runs several other emerging markets mandates.
Performance of the £1.48 billion trust has been driven by around 70 high-quality businesses that are generally held for the very long term. The bulk of assets (38%) are in China but smaller (and arguably even more authoritarian) countries such as Belarus are also represented, in this instance via information technology holding EPAM (NYSE:EPAM), which represents 5.9% of the trust’s assets.
JPMorgan Japanese (LSE:JFJ) is the third of a trust trio in this portfolio that is managed by JPMorgan, which also manages the largest number of investment trusts in the UK.
Despite an underwhelming year that has seen JFJ underperform most of its growth-focused peers, its 16.9% return was still ahead of the benchmark Topix Index.
Nicholas Weindling has managed the £996 million trust since 2007 and was joined by Miyako Urabe as co-manager in 2019, with the duo focusing on quality growth stocks which they expect to benefit from structural trends such as digitisation and automation.
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The investment approach has paid off handsomely over the longer term, with three and five-year performance double that of the benchmark, while over 10 years it is nearly three times better.
Gearing has been raised to 15% to reflect the managers’ confidence and although that gives us some concern for its membership of a conservatively positioned portfolio, all five peers in the Japan sector currently employ gearing of between 9% and 21%.
The capital preservation mindset of the duo who run Schroder Asian Total Return (LSE:ATR) is no impediment to regularly producing sector- and market-beating returns. The past year has been no exception, with the shares up 38.7%, and validating our decision to add the trust to our roster last year.
That performance added to a five-year gain of 151.9%, which places the £526 million trust in the first quartile of its sector.
Managers Robin Parbrook and King Fuei Lee combine stock picking with quantitative models that help them to determine whether they should employ downside protection, which is achieved via futures and options.
Pantheon International (LSE:PIN) has been a long-term favourite and was reintroduced to the conservative portfolio last year. It is a widely diversified fund of private equity funds with a good spread of geographical and sector allocations.
Just under half of the £1.46 billion trust’s underlying portfolio investments are invested in information technology and healthcare companies. Consumer and financial companies represent a further 26%. US exposure accounts for 49% and Europe for 31% of the portfolio, but the largest investment is EUSA Pharma of the UK, which accounts for 3.9%.
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At a net asset value (NAV) level the trust has achieved annualised double-digit returns over the past five and 10 years, with the 38.9% share price return over the last year adding to that record.
Despite its ultra-defensive asset allocation, shares in ii Super 60 constituent Capital Gearing (LSE:CGT) shares rose by 11.5% over the past year. Managers Peter Spiller, Chris Clothier and Alistair Laing prioritise capital preservation above all else. The trust’s long-term holdings in index-linked government bonds – 30% of the portfolio – proved to be profitable as inflation expectations have increased. Equities and property represent 18% and 19% of the portfolio respectively.
Demand for shares in the £752 million trust means they usually trade at a small premium of around 2-3% to net asset value.
How the conservative portfolio constituents have fared in the past year and beyond*
|% share price total return and AIC sector quartile rank after:|
|Conservative choices||3 mths||Rk||6 mths||Rk||1 year||Rk||3 yrs||Rk||5 yrs||Rk|
|BlackRock Throgmorton Trust||15.8||2||22.2||2||67.7||2||73.6||1||242.3||1|
|Schroder Asian Total Return Investment Co||1.0||3||4.1||2||38.7||2||47.2||3||151.9||1|
|JPMorgan American IT||8.5||2||13.9||2||37.6||3||61.0||2||127.5||1|
|JPMorgan Emerging Markets IT||3.1||3||2.5||4||36.2||1||66.7||1||127.0||1|
|JPMorgan Japanese IT||-2.3||2||-14.1||4||16.9||4||38.3||1||107.9||2|
|Capital Gearing Trust||5.1||2||4.9||3||11.5||3||25.5||1||45.5||2|
|Troy Income & Growth Trust||8.0||2||6.2||4||7.5||4||10.0||2||24.6||4|
Notes: * Holdings ranked by one-year performance. Not all constituents were members of the portfolios over the time periods stated. Data source: FE Analytics as at 30 June 2021.
Adventurous choices for longer-term investors
UK equity income
Last year’s dividend dearth weighed on the share prices of equity income trusts, but unlike open-ended funds, most investment trusts maintained or even increased their annual dividend payouts.
The healthy dividend reserves of Dunedin Income Growth (LSE:DIG), currently 1.24 years of the most recent total dividend, meant it was able to raise its payout from 12.7p to 12.8p in the year to 31 January 2021. The trust has increased its dividends every year bar two since 1993.
Manager Ben Ritchie was joined by Georgina Cooper in July last year and the duo invest in around 50 growth-focused companies with the potential to grow their dividends. There is also a strong focus on sustainable and responsible investing criteria.
The recent market rotation back to cyclical value stocks meant that the share price return of 28.9% was a little under the average for the UK equity income sector, but its three- and five-year returns remain exceptionally good.
UK smaller companies
Like Henderson Smaller Companies (LSE:HSL), Standard Life UK Smaller Companies (LSE:SLS) has a similar strategy of investing in ‘quality growth’ stocks yet SLS’s performance lags HSL’s by a good margin over one, five and 10 years.
Harry Nimmo has managed SLS for 18 years and is approaching retirement, another factor in our decision to swap our UK small-cap exposure to HSL, which is also an ii Super 60 constituent.
Under manager Neil Hermon, the trust has outperformed the Numis Smaller Companies (excluding investment trusts) index in 15 of the 17 years he has been in charge. Bellway (LSE:BWY), Renishaw (LSE:RSW), Rotork (LSE:ROR), RWS (LSE:RWS) and Victrex (LSE:VCT) are examples of long-term holdings that have helped to drive performance that has seen the trust return 64.6% over one year and 149.3% over five years.
With a market capitalisation of £937 million, it is a sensible strategy for the trust to have good exposure to medium-sized UK companies rather than purely invested in market minnows. However, the trust’s policy is to sell holdings when they reach the FTSE 100 index, which recently happened with the aforementioned Renishaw.
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Montanaro European Smaller Companies (LSE:MTE) has fallen short of rival TR European Growth (LSE:TRG) (a previous member of this portfolio) over the past year but we are sticking with the former trust.
In any case, a one-year return for MTE of 44.9% is far from shabby and the comparative record between the two trusts over five and 10 years continues to favour Charles Montanaro’s quest for growth from high-quality, well-managed businesses with decent levels of free cash flow.
The £299 million trust currently holds 56 companies with a median market capitalisation of £2.4 billion and there is a strong focus on environmental, social and governance (ESG) considerations.
Previous lead manager Charles Plowden has now stepped down and co-managers Spencer Adair and Malcolm MacColl have taken charge, but both have been involved in the £3.24 billion trust’s management since 2015.
Monks has a more diversified portfolio than SMT, with no holding representing more than 4% of assets, but among its 100-plus portfolio constituents it also has some exposure to early stage companies with high growth potential. Indeed, the BG-managed private equity trust Schiehallion (LSE:MNTN) is the fund’s largest holding, but the top 10 holdings account for just 21% of assets.
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ii Super 60 member Baillie Gifford Shin Nippon (LSE:BGS) remains our go-to trust for small company exposure to ‘new Japan’. A 19.3% return over the past year is respectable given that the shares are down -13.9% over the past six months, marking a period of rare underperformance against its MSCI Japan Small Cap Index benchmark.
Longer-term performance is among the best for all investment trusts, with the shares having gained 630% over 10 years and 103.9% over five.
Five-to-10 years also happens to be the time frame that manager Praveen Kumar is looking to when identifying exciting new companies with disruptive business models, as well as better established firms with more dynamic management.
The £720 million trust aims to invest in between 40 to 80 such companies and the top 10 account for just over a quarter of its assets.
Current member Templeton Emerging Markets (LSE:TEM) has performed with credit over the past year, but its portfolio and performance are similar to JPMorgan Emerging Markets, which we hold in the conservative portfolio.
Therefore, we are replacing TEM in the adventurous portfolio with Mobius Investment (LSE:MMIT), managed by previous Franklin Templeton luminaries Mark Mobius and Carlos Hardenberg. This £150 million trust has only a short history. It was launched in October 2018 and got off to a slow start, but performance started to pick up steam after the stock market ructions in the first quarter of 2020.
We like this trust because it has meaningful exposure to small to medium-sized companies in emerging and frontier markets and we believe the managers have the right pedigree and robust investment process to make a success of it. In the past year, the shares have gained 58.2%, aided by a 10% percentage point reduction in the discount to NAV.
The managers aim to identify companies with resilient and innovative business models whose shares are mispriced. The focus on smaller companies means the managers aim to actively engage with companies to improve corporate governance and “act as a catalyst for wider operational and financial improvements including a clear ESG pathway”.
The portfolio is quite punchy, with the top 10 shares accounting for 63% of assets.
The juggernaut of Baillie Gifford-managed investment trusts continues to gather speed and Baillie Gifford US Growth (LSE:USA) is one of the engine’s most powerful pistons. In the past year, its mix of 50 publicly listed companies and 20 unquoted companies has produced a 66.3% gain and more than 200% since launch in March 2018, while also growing its market capitalisation to £1.08 billion.
Managers Gary Robinson and Kirsty Gibson follow the firm’s general investment approach of investing for the long-term in exceptional growth businesses and “owning them for long enough that the advantages of their business models and cultural strengths become the dominant drivers of their valuations”.
Exposure to private companies can be up to 50% of NAV but is currently 16%. The managers observe that “increasingly, companies in the US are choosing to remain private for longer, and as such the public equity markets do not offer the full spectrum of growth investment opportunity that we have previously enjoyed”.
Asia excluding Japan
Baillie Gifford-managed Pacific Horizon (LSE:PHI) is the only Asia-focused trust with a better five-year record than our incumbent JPMorgan Asia Growth & Income (LSE:JAGI). We were tempted to swap into PHI, but it regularly trades at a high premium to NAV, so we are sticking with JAGI.
Under managers Eyaz Ebrahim and Robert Lloyd, JAGI has been no slouch, returning 159.8% over five years, around 50% more than the benchmark MSCI AC Asia ex Japan index. As its name suggests, JAGI also pays a decent income of 4% of NAV, with dividends paid quarterly.
The managers favour large, well-known growth stocks, with the top 10 accounting for more than half of the £491 million trust’s portfolio. Over the past year, the trust has gained 32.5%.
Our longstanding specialist pick has been Allianz Technology (LSE:ATT), which has had another strong year with returns of 30.6%. Among all 20 portfolio constituents, ATT’s three-year profit of 106.7% is bettered only by Baillie Gifford US Growth, while its five-year return of 375% is second to none.
Under Walter Price’s stewardship, the trust has grown its market capitalisation to £1.25 billion since its launch in 1995. He remains bullish on prospects, stating that the sector continues to benefit from strong tailwinds that should continue to provide attractive growth opportunities over several years.
“There is no question in our minds that the present events around the Covid-19 crisis will spur the use of technology and change how we live and work in the future,” he says. “We are in a period of rapid change, where the importance of technology is key to the prosperity of most industries.”
We added NB Private Equity Partners (LSE:NBPE) to the portfolio last year as we thought it had a promising portfolio and its shares were trading on an exceptionally wide discount.
Our faith has been rewarded with a 56.9% share price return in the past year.
Its manager, NB Alternative Advisers, is a well-connected US-based private equity firm managing $70 billion of commitments, and NBPE’s portfolio is predominantly in directly held investments. Four new direct investments totalling $40 million were made in the first half of 2021.
The portfolio is well diversified in terms of sector, with 20% in IT. Elsewhere, industrials, business services, consumer, healthcare and financial services are well represented. Around 70% of the $1.43 billion assets under management are in North America and the rest mostly in Europe.
NBPE pays a half yearly dividend which equates to a 3.3% yield on the share price. The shares are trading on a large discount of around 30%.
The trust is 21% geared mainly via zero dividend preference shares that mature in 2022 and 2024.
How the adventurous portfolio constituents have fared in the past year and beyond*
|% share price total return and AIC sector quartile rank after:|
|Adventurous choices||3 mths||Rk||6 mths||Rk||1 year||Rk||3 yrs||Rk||5 yrs||Rk|
|Baillie Gifford US Growth Trust||14.8||1||7.5||4||66.3||1||185.0||1||-||-|
|NB Private Equity Partners||20.3||1||22.0||1||56.9||1||47.9||2||128.6||2|
|Standard Life UK Smaller Cos Trust †||17.1||1||11.0||4||46.9||3||46.3||2||139.2||2|
|Montanaro European Smaller Cos Trust||6.8||3||4.1||3||44.9||4||93.8||1||233.4||1|
|Templeton Emerging Markets IT †||0.4||4||6.9||2||33.1||2||54.9||1||121.7||1|
|JPMorgan Asia Growth & Income||3.0||1||6.6||1||32.5||1||66.8||1||159.8||1|
|Allianz Technology Trust||8.7||1||-0.8||4||30.6||2||106.7||1||375.0||1|
|Dunedin Income Growth IT||9.2||1||10.9||3||28.8||3||41.8||1||74.9||1|
|Baillie Gifford Shin Nippon||-3.4||4||-13.9||3||19.3||1||18.4||2||103.9||1|
Notes: *Holdings ranked by one-year performance. Not all constituents were members of the portfolios over the time periods stated. † Trust name in italics indicates that a change to the portfolio has been made. See text for details. Data source: FE Analytics as at 30 June 2021.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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