Property was one of the most popular parts of the alternatives bucket and those who invested were generally rewarded, as a round-up by FE Trustnet of both the open-ended and closed-ended parts of the market found.
The Winterflood team has compiled a list of trusts that it expects will see their overall share prices outperform their respective benchmarks over the medium term on a risk-adjusted total return basis. This could be a narrowing of its discount or through growth in its underlying portfolio.
While many believe that alternatives can offer uncorrelated performance to core equity and bond holdings, for many investors the phrase conjures up images of opaque and hard to understand strategies and markets.
Winterflood, however, says the investment trust sector contains a number of strong performing specialist funds. Here they reveal their favourites.
First up is the £144m Allianz Technology trust – until recently known as the RCM Technology trust – managed by Walter Price, who has been at the helm since 2007.
As the name suggests the trust specialises in technology both old and new, which as a sector has made huge returns in recent years.
Only one other investment trust sits in the IT Technology and Telecoms sector – the Polar Capital Technology trust – with both making strong returns over three and five years.
Since Price took over it is up 149.87 per cent, 10 percentage points ahead of the FTSE World Technology index.
Performance of trust and index since 30 April 2007
Source: FE Analytics
The manager recently told FE Trustnet what he is expecting to make money this year.
The trust is on an 8.8 per cent discount and has a clean OCF of 1.32 per cent. It has a performance fee if it beats its benchmark, capped at a maximum of 2.25 per cent of the trust's net asset value at the year end.
Another recommendation comes from a similarly high growth part of the market in the form of the Biotech Growth Trust.
Biotech has boomed in recent years with the trust up 255.81 per cent while its index and sector have gained 198 per cent and 161.55 per cent respectively.
Despite a sell-off in March 2014, the trust continued to have a very strong year; in fact it made a double-digit return every year since 2008, following a loss of 3.56 per cent in 2007.
Its top holdings include Celgene, Amgen and Gilead Sciences.
It is on a discount of 3.4 per cent, is 9 per cent geared and has a clean OCF of 1.22 per cent. With a performance fee, the total charges totalled 2.09 per cent at the last calculation.
BlackRock Commodities Income is next up. The £118m trust, managed by Olivia Ker and Tom Holl since January 2014, is mostly invested across oil & gas, industrials and basic materials.
While it has fared better than the average fund in the IT Commodities & Natural Resources sector, 2014 was a shocking year for the trust. It is down 16.23 per cent since the pair took over with much of the downside attributable to its oil exposure, as the graph below shows.
Performance of trust, sector and index since 20 January 2014
Source: FE Analytics
The fall has meant the trust is currently on a 0.1 per cent discount. It is 4 per cent geared and has an OCF of 1.39 per cent.
Winterflood says infrastructure is one of the highest rated sub-sectors in the investment trust universe at present, with many funds trading on premiums with value plays therefore difficult to find.
However, it tips John Laing Environmental Assets Group, which is currently on a 3.9 per cent premium and is the newest trust on list, having launched in March 2014.
The trust has a relatively high expected yield of 5.8 per cent with a stated aim to provide a regular and growing income.
Investing in water, solar and wind power it is up 6.2 per cent since its launch, beating the average fund in the IT Infrastructure Renewable Energy sector by more than three percentage points.
According to the trust’s prospectus, 37 per cent of the portfolio is invested in water, 37 per cent in wind and 26 per cent in solar.
It has a clean OCF of 1 per cent and no gearing.
Winterflood has two property trusts on its list: Standard Life Investments Property Income “as a continued play on the recovery in UK commercial property market” and TR Property for exposure to listed property equities.
The former has been run by Jason Baggaley since 2006 and is currently invested across the UK with strong recent performance forecasting a yield of 5.9 per cent.
However, it is on a relatively high discount of 9.5 per cent with an OCF of 1.99 per cent. It is 32 per cent geared, while TR Property has done well in recent years but is still on a discount of 1.4 per cent. It is geared 14 per cent.
Over three years Standard Life Investments Property Income is up 81.65 per cent while TR Property is up 129.98 per cent.
Performance of trusts over 3yrs
Source: FE Analytics
TR Property has an OCF plus a performance totalling 2.06 per cent at the last calculation.
Last up is the only hedge fund Winterflood tips – the $755m BlueCrest AllBlue trust, which is actually more of a fund of hedge funds.
It is on a discount of 4.7 per cent. It has no gearing and a clean OCF of 0.07 per cent.