Trust the Premier League
There has been a lot of discussion about how the retail distribution review (RDR) and the abolition of commission will put investment trusts and Oeics on a level playing field.
The realists amongst us figure that the playing surface might have been levelled but several barriers remain in place. Concerns around discounts, gearing, liquidity and volatility are firmly embedded in intermediaries’ minds. In many cases these concerns are valid.
Small unloved trusts won’t be any more attractive post-RDR as they were pre-RDR. However, there is a Premier League of investment trusts that rise above the opposition and demands recognition from intermediaries. They deserve a place next to open ended funds on major distribution platforms and not just as part of a bolt on stockbroker service. They are mainstream players in every sense. So here is a top ten of investment trusts destined to excel on the field post-RDR: (blog continues below)
- Templeton Emerging Markets has established itself as a core holding for investors looking for emerging market exposure. It is one of the most liquid trusts in the sector. It is managed by Mark Mobius who believes that the fundamental strengths of emerging markets – high growth rates, low debt to GDP and high foreign reserves point to a positive future.
- Scottish Mortgage* gives investors exposure to a genuinely global portfolio of companies that the manager expects to deliver superior and sustainable long term growth, It bears little resemblance to any benchmark. It takes a five year plus view. The economic transition from developed to developing countries remains a key theme. Equally important is the acceleration of technical innovation with many sectors now in an exponential growth stage – these include cloud computing, energy, medicine and genetics.
- RIT Capital is the vehicle for Lord Rothschild’s wealth and such has a primary focus on capital preservation. RIT gives investors exposure to a range of asset classes and investments that is extremely hard to replicate.
- Murray International was transformed by the appointment of Bruce Stout in 2004. Since then he has constructed the best record of all open and closed ended equity funds. Over the past 4 years the trust has issued some £200m worth of new shares. It also offers a yield well above most markets.
- BlackRock World Mining has given investors exposure to the key growth theme of the past ten years. It should be a core holding for those looking for exposure to global mining and metal securities. With China and other emerging markets supporting commodities the asset class should make further progress in the long term.
- Witan Investment Trust adopted a multi manager strategy in 2004. The initial results were disappointing. However, recently some adroit changes have restored faith in one of the industry’s stalwarts. Performance has improved and the trust offers access to a range of highly talented managers without the normal drag of double fees.
- Edinburgh Investment Trust is now managed by the near legendry Neil Woodford. It has had some years in the doldrums but the great man has transformed the fortunes of the trust. The dividend yield on Edinburgh is higher that his mega open ended fund and the trust is cheaper.
- City of London could be described as dull and boring but it has proved that there is nothing wrong with that. It has a low risk investment style which has delivered solid above par returns over the long term. The trust yields a healthy 4.5% and has increased its dividend for 45 consecutive years. It is also very cheap with a total expense ratio of below 0.50%.
- Foreign & Colonial is the granddaddy of them all. It might not be the biggest trust anymore but it will always be the oldest. These days its edge is that it gives investors low risk exposure to private equity with a weighting of around 20%. Conventional equity performance is acceptable and the trust looks to keep its discount around 10% through regular buy backs.
These trusts are established players with little to prove. They have experienced managers, strong performance records, robust discount management and abundant liquidity. Unlike many a premier league player they crave the limelight.
* This trust is managed by Baillie Gifford.
James Budden is director of retail marketing and distribution at Baillie Gifford.
Will Dale Nicholls do a better job than Anthony Bolton running the Fidelity China Special Situations trust?