Scottish Mortgage could be a potential ISA or SIPP addition for aggressive investors while those with a more cautious mindset could find RIT Capital Partners to be an attractive option, according to Hargreaves Lansdown’s Laith Khalaf.
With the end of the tax year now firmly in sight, senior analyst Khalaf highlights three trusts – one from the global sector, one from UK equity income sector and one from the flexible investment sector – that investor could find attractive in the current environment.
In the following article, we examine the investment trusts that Hargreaves Lansdown says investors might want to consider before the end of the tax year.
This £3.2bn trust has been managed by James Anderson since April 2000 (Tom Slater was appointed deputy in August 2009) and resides in the AIC’s Global sector. It is one of the most popular trusts with retail and professional investors, thanks to its strong long-term track record.
FE Analytics shows Scottish Mortgage has returned 198.41 per cent over the past 10 years, outperforming its average peer and its FTSE All World benchmark by a significant margin. It is also beating both the sector and index over three and five-year periods.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
Khalaf said: “This is a high octane investment trust which invests in a small number of companies expected to benefit from unfolding themes the manager has identified.”
“The emergence of China as an economic superpower and the growing dominance of all things internet-related are two such themes. Not for the faint-hearted.”
The trust bears little resemblance to the index, which is used on to measure performance over rolling periods of at least five years. For example, it has 16.4 per cent of its portfolio in China and has tech names such as Amazon, Baidu, Facebook and Alphabet in its top 10 holdings.
Scottish Mortgage has ongoing charges of 0.48 per cent, is yielding 1.2 per cent and is trading on a 3.3 per cent discount to net asset value (NAV). It is 12 per cent geared.
Khalaf said: “This is a core equity income fund which is on track to celebrate a golden jubilee in 2016, marking 50 years of paying a rising dividend. The managers like large cash generative businesses which can produce steady earnings, even in lean times.”
Job Curtis has run this £878m trust since January 1991. Over the past 10 years he has doubled the return of the AIC’s UK Equity Income sector with a 110.98 per cent total return, although it is currently in the second quartile over five years and third quartile over three.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
Curtis’ portfolio is built around equity income stalwarts with the likes of British American Tobacco, Royal Dutch Shell, HSBC, Vodafone Group and Diageo appearing in its top 10 holdings. The largest sector allocation is to financials, followed by consumer goods, consumer services and industrials.
The trust has tended to trade on a premium to NAV over the past few years but has recent moved onto a discount – currently 2.5 per cent. This may prove attractive to bargain-seeking investors, given its average premium over the past three years has been 1.74 per cent and it has been as high as 3.24 per cent in the last 12 months.
City of London has ongoing charges of 0.42 per cent, is 11 per cent geared and is yielding 4.03 per cent.
This £2.5bn trust resides in the AIC’s new Flexible Investment sector. It has outperformed its average peer by a wide margin over the past 10 years but is slightly underperforming its MSCI AC World benchmark.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
Khalaf said: “RIT Capital Partners is a multi-asset investment trust which aims to shelter capital during market falls while delivering long-term growth. Worthy of consideration for more conservative investors.”
The trust’s portfolio is widely diversified across a range of asset classes. It currently has 44 per cent of assets in long quoted equities, 21 per cent in hedged quoted equities, 15 per cent in absolute return and credit, and 24 per cent in private equity investments.
Earlier this year Lord Rothschild, the trust’s chair, said the portfolio’s allocation to equities had been cut as the managers expect volatile conditions to continue in markets.
“Our view is that 2016 is likely to turn out to be more difficult than the second half of 2015,” he said. “Our policy will be towards a greater emphasis on seeking absolute returns.”
RIT Capital Partners has ongoing charges of 1.25 per cent (which includes a performance fee), is yielding 0.74 per cent and is trading on a 0.37 per cent premium. It is 12 per cent geared.
