In our final look at the Winterflood research team’s trust tips we shine a light on three contentious regions for equity exposure.
Whereas in the UK most are expecting moderate returns at best from UK equity markets, Europe, Japan are emerging markets have all been routinely touted as set for QE-fuelled booms. But this comes alongside the risk of deflation-led crashes in Europe and Japan and a host of headwinds in emerging markets.
Winterflood tips three Europe trusts: Fidelity European Values, Jupiter European Opportunities and TR European Growth, although the latter is the team’s favoured small cap play.
Fidelity European Values and Jupiter European Opportunities have beaten the MSCI Europe ex UK index over the past three years, although only Jupiter European Opportunities beat the IT Europe sector average over this period.
Performance of trusts, sector and index over 3yrs
Source: FE Analytics
In fact, the £407m trust is the best performing trust in the sector over one, three, five and 10 years.
Headed up by FE Alpha Manager Alexander Darwall since 2000, it is currently on a discount of 0.2 per cent with 10 per cent gearing and a clean ongoing charges figure (OCF) of 1.06 per cent.
While Darwall is one of the most renowned managers in the European equity space, the trust also has 27 per cent in the UK.
Fidelity European Values, by contrast, also has some UK exposure albeit significantly less at 5 per cent.
It is also on a discount, but a much more substantial 10.6 per cent, and has an OCF of 0.94 per cent with 5 per cent gearing.
Managed by Samuel Morse since January 2011, it has top positions in mega cap names such as Nestle, Sanofi and Roche.
Ollie Beckett has headed up the TR European Growth Trust since 2011, when the sector lost a whopping 28 per cent as the sovereign debt crisis prompted panic in markets.
It is up 94.89 per cent over three years, ahead of both its index and sector.
Performance of trusts, sector and index over 3yrs
Source: FE Analytics
Performance was disappointing in 2014 – down 3.31 per cent – after a barnstorming 2013 where the trust returned over 62 per cent.
It is also on a wide discount of 13 per cent, which has widened from 6 per cent over the past year. It has an OCF of 0.7 per cent but also levies a performance fee. It is 13 per cent geared.
Winterflood tips just one Japan fund, the £154m Schroder Japan Growth managed by Andrew Rose
While it has beaten the Topix over three years, performance has been mixed, returning 20 percentage points less than the sector over this period.
It’s on a 10.6 per cent discount, has 14 per cent gearing and an OCF of 1.37 per cent.
Winterflood says Asian equities and emerging markets remain out of favour at the moment, which is reflected in discounts wider than the rest of the investment trust universe.
With this mind it recommends Edinburgh Dragon, Scottish Oriental Smaller Companies, BlackRock Frontiers and JP Morgan Emerging Markets as their preferred exposure.
Edinburgh Dragon and Scottish Oriental Smaller Companies both sit in the IT Asia ex Japan sector while BlackRock Frontiers and JP Morgan Emerging Markets are in the IT Global Emerging Markets sector.
The two Asia ex Japan trusts are up over three years although FE Alpha Manager Angus Tulloch’s Scottish Oriental Smaller Companies trust has performed significantly better with returns of 60.37 per cent.
Performance of trusts, index and sector over 3yrs
Source: FE Analytics
Tulloch is on discount of 6.7 per cent with an OCF of 1.35 per cent while Adrian Lim’s Edinburgh Dragon 11.1 per cent and has an OCF of 1.19 per cent.
While sitting in the emerging market sector Emily Fletcher and Sam Vecht’s BlackRock Frontiers trust has a broad spread of exposure to frontier markets such as Bangladesh, Nigeria and Turkey.
After several years of rapid returns it has seen a tricky last quarter of 2014 with the fund almost 20 per cent down since October.
However, its three-year track record is still almost four times more than that of JPMorgan Emerging Markets.
Performance of trusts, sector and index over 3yrs
Source: FE Analytics
However, 2014 was a good year for the JPM trust thanks in part to its India exposure.
BlackRock Frontiers discount has now widened to 7.6 per cent with an OCF of 1.45 per cent. JPMorgan Emerging Markets is on an 11.1 per cent discount and has an OCF of 1.17.