Mark Barnett’s Edinburgh Investment Trust and Sebastian Lyon’s Personal Assets Trust are among four investment trusts worth considering for 2019, according to Hargreaves Lansdown’s Laith Khalaf.
Khalaf, senior analyst at Hargreaves Lansdown, said while UK investors may be focused on the uncertainty surrounding Brexit, they should not lose sight of their long-term investment goals.
He said: “Investing at times like these is uncomfortable, but often it proves more timely than sticking money in the market when everything looks to be going swimmingly.
“While there are certainly challenges for the global economy in 2019, it’s by no means the first time clouds have gathered over markets.”
Indeed, Khalaf said investors should maintain a balanced and diversified portfolio, which has some exposure to the UK in case Brexit turns out better than expected, while also holding some overseas holdings in case it doesn’t.
Below, FE Trustnet considers the four trusts that Hargreaves Lansdown believes can help investors build a more balanced portfolio in 2019.
Edinburgh Investment Trust
“Lots of investors can’t see past Brexit,” said Hargreaves Lansdown’s Khalaf. “So UK companies, and trusts that invest in them, have fallen out of favour.”
As such, his first pick is FE Alpha Manager Mark Barnett’s Edinburgh Investment Trust, which the analyst noted trades at a high single-digit discount to net asset value (NAV).
“It invests in lots of solid UK business that will almost certainly survive Brexit,” said Khalaf. “Some are more reliant on consumer spending, others are truly international, but they’re all businesses that Barnett thinks are undervalued but fundamentally well-managed and in good financial health.”
“This is important because as well as aiming to grow your investment over the long term, Barnett tries to pay high and rising dividends.”
He noted: “Profitable, cash-generative companies should be well-placed to do this.”
Edinburgh’s top holding is oil giant BP representing 6.4 per cent of the portfolio. Other names include British American Tobacco, US tobacco firm Altria (at least 80 per cent of the trust’s assets must be held in UK equities), litigation finance vehicle Burford Capital and life insurer Legal & General.
Performance of trust vs sector & benchmark in 2018
Source: FE Analytics
Last year, the trust delivered a loss of 11.29 per cent, compared with a fall of 9.47 per cent for the FTSE All Share benchmark and an 8.94 per cent loss for its average IT UK Equity Income peer.
Edinburgh Investment Trust is currently trading a discount to NAV of 7.9 per cent, has ongoing charges of 0.57 per cent, gearing of 9 per cent and a yield of 4.6 per cent.
Murray International Trust
One trust offering exposure to companies outside the UK highlighted by Khalaf is the £1.4bn Murray International Trust, which invests in global equity and bond markets.
“Asian and emerging markets also had a tough 2018,” said the analyst. “This has seen shares in Murray International Trust slip from a premium to a discount.
“Bruce Stout, the trust’s manager, likes to invest in companies he thinks will survive through thick and thin, and aims to pay a decent, growing income while increasing capital over the long term too.”
Just over 80 per cent of the Murray International Trust is invested in equities – including a 10.3 per cent exposure to UK equities – with the remainder made up of overseas bonds and cash.
“He’s retained a bias to higher-risk Asian, Latin American and emerging markets in recent years, where he sees more attractive valuations than in western markets such as the US,” said Khalaf.
“This has been painful recently and it’s been the wrong call to not have much invested in the US over the past few years. Stout still thinks many Asian and emerging market companies have better growth prospects that western counterparts, so he’s happy to keep investing in them.”
Performance of trust vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years Murray International Trust has made a total return of 55.76 per cent compared with a 36.46 per cent gain for its average IT Global Equity Income peer and a return of 45.35 per cent for the benchmark FTSE World ex UK index.
The trust is currently trading at a premium to NAV of 1.9 per cent, is 13 per cent geared, has ongoing charges of 0.64 per cent and a yield of 4.6 per cent.
Fidelity China Special Situations
The ongoing trade spat between China and the US has created some opportunities for investors with a more long-term view on the Asian powerhouse.
“The highest-profile casualty of the tension between the Chinese and US governments has been China itself,” said the Hargreaves Lansdown analyst.
“There’s undoubtedly some short-term uncertainty, but there’s long-term potential and stock market falls have left the market looking attractively valued.”
Indeed, Khalaf said his third pick Fidelity China Special Situations “offers and adventurous way to invest in some of the companies that could lead China’s transition to a more consumer-focused economy”.
“Talk of a trade war between the US and China, and slowing consumption growth, has hurt recent performance,” he explained. “But manager Dale Nichols notes that of the companies he’s invested in only 1.5 per cent of their revenue comes from the US, so they shouldn’t be directly affected.
“And while consumption growth has slowed in the short term, it’s still strong by global standards with plenty of scope to rise.”
In 2018 it made a loss of 17.78 per cent compared with a fall of 13.83 per cent for the benchmark MSCI China index.
Fidelity China Special Situations is currently trading at a discount to NAV of 10.2 per cent, is 31 per cent geared and has ongoing charges of 1.11 per cent.
Personal Assets Trust
Khalaf’s final choice is “something completely different” in the £902.2m Personal Assets Trust, run by FE Alpha Manager Sebastian Lyon.
“The aim is to preserve and increase your investment over the long term,” said the analyst. “So if you’re worried about Brexit, or wider global issues, it’s the type of trust that might appeal.
“It could protect wealth already built up but maintain the potential for some growth.”
Personal Assets Trust is composed of four main elements: large-cap stocks, inflation-protected US government bonds (TIPS), physical gold, and cash.
Lyon aims to protect and increase investors’ cash over the long term, delivering as high a total return as possible avoiding any level of risk significantly higher than that of the FTSE All Share index.
Khalaf added: “This balanced approach is likely to look dull when stock markets are rising rapidly, but it can come into its own when they fall.”
Performance of trust vs sector & benchmark over 10yrs
Source: FE Analytics
Over 10 years, Personal Assets Trust has generated a total return of 92.2 per cent, compared with a gain of 131.83 per cent for the benchmark FTSE All Share index and a return of 84.59 per cent from its average IT Flexible Investment peer.
Personal Assets Trust is currently trading at a premium to NAV of 1.1 per cent, is not geared and has ongoing charges of 0.89 per cent.