Investment trusts have numerous advantages over their open-ended rivals, such as the ability to gear, and generally lower fees and turnover. They also tend to outperform over the long-term, albeit with higher volatility.
There are a number of top-rated portfolios on offer for anyone who is comfortable with the complexities associated with these products.
The Lindsell Train IT and Mid Wynd International IT are two examples – both five crown-rated portfolios that have been headed up by the same manager for at least 10 years.
The former, run by FE Alpha Manager Nick Train
, is a concentrated portfolio of only 20 companies. The top-10 accounts for 80 per cent of assets under management (AUM), which illustrates the high-conviction approach of the manager.
Among his biggest positions are an 11.5 per cent stake in Scottish soft-drink manufacturer AG Barr and a 4.5 per cent position in Heineken.
The manager holds both stocks and collective portfolios, and includes the Lindsell Train Japanese Equity fund in his top-10.
He is significantly underweight the US. The core part of the portfolio is focused on the UK, in which it has a 69.2 per cent position, and it is also overweight Japan.
In a recent interview with FE Trustnet
, Train said that he tends to ignore macro trends and focuses instead on sector and company fundamentals.
"If a stock does badly because of a cyclical downturn, I tend to have a ‘so what?’ attitude," he explained. "I only get rid of a company if it’s going through a secular challenge."
The manager is a big fan of companies that develop digital content, such as the Mail Group which has seen a huge uptake in its website in recent years.
Performance of fund vs sector over 10 years
Source: FE Analytics
Train’s high-conviction approach has worked wonders for investors; according to FE data, Lindsell Train IT is a top-three performer in its sector over three, five and 10 years.
Over the last decade, it is up 253.34 per cent compared with 114.06 per cent from the FTSE World index. Only two global growth trusts have returned more, and both have far poorer records in the shorter term.
Lindsell Train IT is up 78.01 and 65.81 per cent over three and five years respectively.
Train has managed the portfolio since its launch in January 2001. It has an annual management charge (AMC) of 0.65 per cent, but also carries an annualised performance fee.
It is currently on a premium of 21.5 per cent – among the highest in the AIC universe. Winterflood Securities’ Simon Elliott thinks investors would be wise to wait for this figure to come down before buying the trust.
"Lindsell Train is a trust that is flagged up time and time again for its performance, but it’s pretty illiquid and is on a very high premium," he said.
"We’re big fans of the Finsbury Income & Growth trust, which is more UK-focused but has many of the same ideas as this one, and is on a lower premium [3 per cent]."
Elliott says Michael MacPhee’s £66m Mid Wynd International IT is another that is often flagged up for its top performance.
According to FE data, it is a top-quartile performer over three, five and 10 years in its IT Global Growth sector. It has fallen short of Train’s trust over all three time periods, but it has been slightly less volatile.
Performance of trusts vs sector and index
Source: FE Analytics
MacPhee’s portfolio is far less concentrated than Train’s. His top-10 holdings account for around a quarter of AUM, and his biggest single holding is a 4.8 per cent position in IP Group.
The manager strongly believes in the emerging markets story, but prefers to get his exposure indirectly through US and UK stocks.
Mid Wynd International IT is on a premium of 3.8 per cent and has a total expense ratio (TER) of 0.87 per cent.
For those who are looking for a portfolio on a discount, Elliott highlights the Monks Investment Trust
, which is headed up by Gerald Smith, and Michael Urquhart’s Edinburgh Worldwide Trust
"Monks is trading on a discount of 14 per cent or so. Smith and MacPhee work very closely together at Baillie Gifford, so this one arguably is a bit better value," he added.