Whether you think the recent strong performance in UK equities is set to endure, or are waiting for a significant fall in markets in the near future, it may be worth keeping an eye on trusts trading on a discount in the popular IT UK Growth sector.
Here are three portfolios on significant discounts and run by top-rated managers:
Richard Buxton – 8 per cent
Schroders' Richard Buxton lost his FE Alpha Manager status recently, but he remains a favourite with long-term investors.
According to FE data, he has returned 145.51 per cent in the last decade, compared with 112.36 per cent from his peer group composite.
He is best known for his £2.8bn Schroder UK Alpha Plus
portfolio, but his £209m Schroder UK Growth
investment trust is also a decent option – particularly for those looking for trusts trading on a discount.
It is a highly concentrated portfolio – even more so than UK Alpha Plus – of 30 to 40 stocks, with almost half of all assets invested in the top-10 holdings alone.
Buxton invests across the multi-cap scale in both defensive and cyclical stocks. GlaxoSmithKline, Shell, Taylor Wimpey and Virgin Media all make it into his top-10.
Year-on-year performance of trust, fund and index
Source: FE Analytics
||2011 returns (%)
||2010 returns (%)
||2009 returns (%)
||2008 returns (%)
||2007 returns (%)
||2006 returns (%)
|Schroder UK Growth IT
|Schroder UK Alpha Plus
|FTSE All Share
The manager had a difficult time in 2011, losing around 6 per cent more than his FTSE All Share benchmark.
Indeed, Buxton has tended to underperform during all down periods, but his record in rising markets is strong. According to FE data, he significantly outperformed the All Share in 2006, 2009 and 2010.
Over a cumulative 10-year period, Schroder UK Growth IT has returned 117.93 per cent – just a touch more than its benchmark. The margin would be much wider were it not for 2008, when it lost a massive 47.59 per cent.
Performance of fund, trust and index over 10-yrs
Source: FE Analytics
According to data from the AIC, the trust is currently trading on a discount of 8 per cent and has an annual management charge (AMC) of 0.65 per cent.
It is yielding 2.7 per cent – significantly more than Schroder UK Alpha Plus' 0.93 per cent payout.
However, the open-ended portfolio has a superior record in the total return stakes in the long-term, as the graph above shows.
Alex Wright – 15.8 per cent
FE Alpha Manager Alex Wright took over as manager of the Fidelity Special Values
trust just last month, so backing this portfolio may be viewed by many as a big risk.
However, given the manager’s record in the open-ended universe and the trust’s heavy discount of 15.8 per cent, it is an attractive option for those who are bullish on the UK market.
Shah has had a difficult time of late, with both his trust and Fidelity Special Situations fund underperforming the All Share over three and five years.
However, Fidelity Special Value’s style is set for a significant change under Wright, who is expected to use his expertise in the small cap market to add greater value to the trust’s benchmark.
Performance of manager vs peer group since February 2008
Source: FE Analytics
Wright’s Fidelity UK Smaller Companies fund has returned 94.85 per cent since it was launched in February 2008, compared with 24.69 per cent from its sector.
Fidelity Special Values is likely to maintain a large degree of its exposure to FTSE 100 companies, but the fund house has allowed Wright to significantly increase his weighting to smaller companies.
The trust has a total expense ratio (TER) of 1.14 per cent.
Mark Barnett – 11.5 per cent
The manager’s £48m Invesco Perpetual Select UK Equity trust has beaten its FTSE All Share benchmark over three and five years, with less volatility, but still finds itself on a discount of 11.5 per cent.
Barnett, who took over as manager in November 2006, runs a large cap portfolio in a similar mould to colleague Neil Woodford’s
Edinburgh Investment Trust.
The FE Alpha Manager holds the likes of GlaxoSmithKline, Vodafone and BT in his top-10, which goes some way in explaining why the trust is yielding far more
[4.38 per cent]
than the average portfolio in IT UK Growth.
However, while the majority of top-rated trusts in the sector are trading on a premium, this one is available on a heavy discount.
Invesco Perpetual Select UK Equity has a TER of 1.21 per cent.