There are only four trusts in the IT UK Growth sector that are currently trading on premiums, only three of which are yielding more than 2.5 per cent. The other – Peter Spiller’s Capital Gearing IT – is a multi-asset portfolio.
There are potential bargains to be had in the sector, however, with a number of high-profile managers running trusts on double-digit premiums.
Here, FE Trustnet looks at three of them in detail.
Schroder UK Mid Cap – discount of 13.4%
The £162m Schroder UK Mid Cap trust is the closed-ended version of Andy Brough’s Schroder UK Mid 250 fund. Brough formerly managed the trust, but it has recently been taken over by Rosemary Banyard, who has been a co-manager since 2003.
Performance of fund, trust, sector and index over 10yrs
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| Schroder UK Mid Cap IT | 60.78 | 107.13 | 94.65 | 466.52 |
| Schroder UK Mid 250 | 52.47 | 63.49 | 49.64 | 229.54 |
| FTSE 250 Index (ex IT) | 44.3 | 62.51 | 73.34 | 308.75 |
| IT UK Growth | 37.26 | 46.65 | 42.87 | 168.5 |
Source: FE Analytics
The trust has a far superior record to its open-ended counterpart and has consistently beaten its FTSE 250 (ex IT) benchmark as well.
Our data shows it has returned a whopping 466.52 per cent over the last decade, more than doubling the returns of the Schroder UK Mid 250 fund.
At £1.3bn, the fund is much larger than the trust, and was even bigger in the mid-2000s. Many industry professionals point to the size of the fund as one of the principal reasons for Brough’s poor record between 2007 and 2012, as it had an adverse impact on flexibility and liquidity.
Performance of fund, trust, sector and index over 5yrs
Source: FE Analytics
The trust has not suffered from the constraints of inflows and at £162m is certainly nimble enough to invest throughout the FTSE 250 index.
In spite of its very strong performance, the trust is on a discount of 13.4 per cent, according to data from the AIC, making it one of the cheapest vehicles in the entire sector.
Innes Urquhart, analyst at Winterflood Securities, says this discount has the potential to close, and thus presents investors with a good entry point.
"It has a strong long-term performance record and, in our opinion, benefits from an experienced manager," he said.
"The fund is differentiated from the Schroder UK Mid 250 fund by its ability to use gearing and its more diversified portfolio."
"There is around 50 per cent commonality across the two portfolios, although only one stock – DMGT – appears in the top-10 holdings of both."
"On a [13.4 per cent] discount, we believe it remains attractive and still see scope for this to narrow further."
According to the AIC, the trust’s three-year average discount is 16.48 per cent.
Schroder UK Mid Cap has an ongoing charges figure (OCF) of 1.14 per cent, excluding performance fee.
Artemis Alpha – discount of 13%
While this £156m trust sits in the IT Growth sector and uses the FTSE All Share as its benchmark, it has a heavy small to mid cap focus, and may be better off being compared against those in the IT UK Smaller Companies sector.
It currently has 79 per cent in small caps, 19 per cent in mid caps, and just 2 per cent in large caps.
It is headed up by highly rated manager John Dodd, who formerly headed up the Artemis UK Smaller Companies fund.
He has led the trust to varying degrees of success since taking it over in 2003. His 10-year returns of 323.29 per cent hold up very well against the All Share, the FTSE Small Cap (ex IT) index, the IT UK Growth sector average and even the IT UK Smaller Companies sector.
Performance of trust vs sectors and indices over 10yrs
Source: FE Analytics
However, a poor 2011 and an even poorer start to this year has seen it fall behind its sector and benchmark over one, three and five years.
Our data shows it has returned 17.68 per cent over five years – around half as much as the All Share.
Recent underperformance has contributed to the trust falling on to a discount of 13 per cent. According to the AIC, the trust’s three-year average discount is 5.66 per cent.
Dodd has a high weighting to natural resources, which has weighed heavily on returns; our data shows it currently has 36 per cent in oil and gas, and includes Hurricane Exploration and Providence Resources in its top-10.
Dodd has a stellar long-term track record, thrashing his peer group composite over a 20-year period.
For anyone who is a long-term investor and believes natural resources are attractively valued, this is a potentially interesting option.
The trust is highly geared at 18 per cent and has an OCF of 1.01 per cent, excluding performance fee.
Henderson Opportunities IT – discount of 18.2%
FE Alpha Manager James Henderson’s (pictured) Henderson Opportunities trust is on the third-highest discount in the entire IT UK Growth sector. Its small size – and therefore limited liquidity – has a big bearing on this, particularly since the manager runs the much larger Lowland Investment Company.
However, the trust’s strong performance in recent years has seen assets grow substantially and the discount come in to 18.2 per cent from a high of 28 per cent.
If Henderson continues his strong run, a closing discount could continue to boost performance.
The £49m trust had a difficult time in the two years after its launch in 2007, but has recovered strongly since then.
Our data shows it has delivered 77.5 per cent over a three-year period, compared with 41.59 per cent from the All Share, and 44.65 per cent from the IT UK Growth sector average.
Performance of trust vs sector and index over 3yrs
Source: FE Analytics
As the graph above suggests, the trust is very volatile, thanks to its small to mid cap bias and high level of gearing, currently at 12 per cent.
Micro-cap healthcare company Retroscreen Virology and FTSE 250 industrial firm Senior are Henderson’s two largest holdings.
Henderson UK Opportunities has an OCF of 1.16 per cent and does not charge a performance fee.
