Seneca Global Income & Growth is an underrated trust which could provide investors with a very attractive option to produce both significant returns and low volatility during turbulent markets, according to Charles Tan (pictured). 
The director of investment companies research at Cantor Fitzgerald says that the trust, which is currently trading on a 2 per cent premium, could provide investors with a “one-stop shop” solution in terms of meeting various desirable criteria, such as consistent outperformance and an attractive dividend yield, which currently stands at 4.1 per cent.
However, the five crown-rated trust is currently just £58m in size, which could be a deterrent for many investors given the perception of safety and greater liquidity in larger portfolios.
“It's small but hopefully that should change,” Tan said. “I guess for big institutions, for instance someone who has £2bn to invest, this might not be the right vehicle.”
“That said, as the performance has picked up over recent years, we've also seen that discount narrow quite significantly from around 10 per cent all the way in and today it either trades on par or at a slight premium to net asset value.”
Tan attributes the narrowing of the trust’s discount to its change in mandate four years ago, which included lowering its fixed income weighting, reducing its overweight to the UK and making the portfolio more globally diverse.
Since the change, Seneca Global Income & Growth (SIGT)’s annualised NAV return has averaged around 10 per cent on an annualised basis compared to the FTSE All Share index’s annualised return of 8 per cent.
Over the last one and five years, it is in the top decile for its total return and is in the top quartile over three years. Its most impressive period of performance is over five years, as it has outperformed its peer average in the IT Global Equity Income sector by 22.87 percentage points with a 54.25 per cent total return, winning it the top performance spot in the sector.
Performance of trust vs sector over 5yrs
Source: FE Analytics
Not only has it delivered a strong performance, it has also achieved significantly less volatility than its peer average and the FTSE All Share and MSCI World indices over one, three and five years.
“It's a small trust, so I would understand if a lot of people hadn't heard of it. That said it's got some good numbers over time and since the change in mandate in 2012 and the numbers have been quite favourable,” Tan continued.
“In terms of the pure numbers it's outperformed the FTSE All Share and it's done so with lower volatility. Just in terms of how it's positioned, I think the average buyer might be Ms Miggins with her £50,000 ISA.”
“It's a nice pot but probably not big enough for her to diversify across 30 different funds, and besides, Ms Miggins doesn't have the time to do any research into whether she should be allocating 10 per cent in real estate or private equity property, for instance.”
It is this type of investor, according to the director of investment companies research, that is likely to find the trust’s global, multi-asset and value-based approach appealing.
However, some investors could argue that adopting both an income and growth mandate, as well as being able to invest across all asset classes and regions, could lead to an investment universe that is too large for the manager to keep track of.
Interestingly though, the trust’s performance has improved since it evened out its allocation across regions and assets. Over 10 years, the trust is actually in the bottom quartile and provided the second-lowest total return out of all trusts in the sector with a decade-long track record.
Performance of trust vs sector over 10yrs
Source: FE Analytics
Tan says that, in terms of concerns about the size of the investment universe the manager is able to pick from, private investors are in some cases safer buying into a vehicle with a broad mandate than choosing areas of the market themselves through a number of trusts.
“Everyone always thinks they're a better driver than they actually are, and in the same way everyone who invests thinks they're a better invest than they are,” he explained.
“I think when it comes to the average Joe investing for their pension pot or for their ISA, for example, it might be a better idea to put it in a professionally-managed outfit for sustainable global income and growth, and to just forget about it really for 20 or 30 years until you need to draw upon those savings.”
“If history is any guide, I think this is exactly the kind of investment you want to be in, with low volatility, where you can sleep well at night and you're still compiling a decent rate of growth year-on-year.”
While manager Alan Borrows believes that 2016 will play out similarly to last year in terms of slowing growth and stubbornly low inflation, he is particularly positive on the UK and believes that developed markets will remain fairly-valued.
He has also increased his weighting to alternative assets including property over recent months as a means of hedging against potential over-valuations in equities and fixed interest.
In fact, since the start of 2016, his allocation to alternatives has increased by 6 percentage points to 30 per cent. The manager has also reduced his cash exposure, meaning the trust is almost fully-invested.
Performance of trust vs sector in 2016
Source: FE Analytics
Even though the trust is essentially fully-invested and is providing strong returns though, sceptics may point out that buying into an investment vehicle trading on a premium, even if it is only small, is heightening the risk of the investor losing capital.
At the end of last year though, the Seneca board announced that it would introduce a discount control mechanism to keep the trust trading more-or-less on par with its NAV.
“Since that mandate change and since volatility started to pick up, the discount has started to narrow quite significantly over time, but the introduction of a discount control mechanism means the trust should remain an attractive prospect for investors to buy into,” Tan continued.
“They're in a very good position now. Looking ahead to 2016, providing markets don't collapse, I think the board is of the mind-set that they're looking to grow this trust and so, hopefully with some luck, it won't be a £58m trust for very long.”
“It’s one of the lesser-known trusts out there, but there’s every chance that it might not be for too long.”
Seneca Global Income & Growth is 10 per cent geared and has an ongoing charge of 1.52 per cent.
