Investment trusts that offer exposure to renewable energy infrastructure, multi-asset strategies and European senior secured loans have been brought into Winterflood’s model portfolio to help diversify its equity holdings.
Recent articles looked at the investment trusts that the group has been using to take exposure to UK and international equities but the broker also makes use of fixed income and alternatives portfolios to access less mainstream areas of the market.
In the following article, we find out which bond and alternative investment trusts have just been introduced to Winterflood’s model portfolio.
CVC Credit Partners European Opportunities
The €222.4m CVC Credit Partners European Opportunities investment trust is found in the IT Debt sector and invests in European senior secured loans and other sub-investment grade corporate credit.
Investments in the trust fall into two broad camps: ‘performing credit’, which currently accounts for 48 per cent of the portfolio and is focused on large, liquid names where the managers are able to actively trade positions; and ‘credit opportunities’, which aims to take advantage of opportunities presented by European banks’ regulatory-driven need to sell down legacy exposures such as stressed and distressed credit.
Performance of trust vs sector since launch
Source: FE Analytics
Explaining why they like the trust, Winterflood’s analysts said: “At the end of November the portfolio was marked at a weighted average discount to its par value of around 9 per cent. The natural pull‐to‐par and the potential for pre‐payments should therefore allow the managers to generate capital upside in addition to the fund’s dividend yield.
“With approximately 89 per cent of the portfolio invested in floating rate instruments, it should also be relatively well placed in the event of an eventual increase in interest rates.”
CVC Credit Partners European Opportunities has ongoing charges of 0.19 per cent, yields 3.6 per cent and is not geared, according to figures from the Association of Investment Companies.
Capital Gearing Trust
Next into Winterflood’s model portfolio is the £153.1m Capital Gearing Trust, which has been managed by Peter Spiller since January 1983 with Alastair Laing joining as co-manager at the start of 2011. The trust has a multi-asset approach, with equity exposure taken through other investment trusts.
“Capital Gearing has an impressive record of delivering strong absolute returns with considerably lower volatility than equity markets,” Winterflood said. “Over the last 10 years the fund has produced a higher NAV total return than the FTSE All Share (100 per cent versus 72 per cent), with much lower volatility (7.2 per cent per annum versus 17.6 per cent).”
Total return of trust vs sector and index over 10yrs
Source: FE Analytics
Spiller aims to protect capital in the short term as well as generate strong risk-adjusted returns over the long run. Indeed, Capital Gearing’s maximum drawdown over the past decade has been around 30 percentage points lower than its benchmark’s.
The trust currently has 33 per cent of its portfolio in investment trusts, including the likes of North Atlantic Smaller Companies, Rights & Issues and Civitas Social Housing. It also has 33 per cent in index-linked bonds and another 7 per cent in conventional government bonds.
Capital Gearing Trust has ongoing charges of 1.03 per cent, is trading on a 1.8 per cent premium to net asset value and yields 0.5 per cent. It is not geared.
Highbridge Multi-Strategy
The assets of the $205.1m Highbridge Multi-Strategy trust are invested in an underlying master fund of the same name, which Winterflood points out has a strong long-term track record of both absolute returns and low volatility.
The master fund, which is a global multi‐strategy hedge fund run by Highbridge Capital Management, currently invests in 14 strategies across seven broader investment strategy groups. It targets a return of 7‐12 per cent annually with 3‐6 per cent volatility.
Performance of trust vs sector and index under Highbridge
Source: FE Analytics
Winterflood notes that the trust has underperformed the master fund over this period, attributing this to the drag created by some remaining illiquid investments in the trust. These are currently being wound down by former manager BlueCrest.
The strategies being pursued by the fund at the moment include sector-focused long/short equity, merger arbitrage, fundamental macro, tactical commodities and distressed credit. Winterflood added: “In theory, the returns of the majority of strategies within the fund should be independent of market direction. The two exceptions to this are the fund’s macro strategies, although these are small allocations (circa 5 per cent in aggregate) and have a low correlation with the rest of the portfolio.”
Highbridge Multi-Strategy has ongoing charges of 0.13 per cent, is trading on a 5.9 per cent discount to NAV and is not geared.
John Laing Environmental Assets Group
This £306m trust resides in in the IT Infrastructure - Renewable Energy sector and offers diversified exposure to onshore wind energy, solar photovoltaics and waste and wastewater management projects.
“Since launch the fund has benefitted from its diversification across a number of asset types, with its waste and wastewater assets softening the impact of falling power prices,” Winterflood said.
Total return of trust vs sector since launch
Source: FE Analytics
“The allocation to renewable energy assets has been gradually increasing as the fund has grown. With power prices rebounding, this could provide a tailwind, although the fund has the lowest sensitivity to power prices in the environmental infrastructure peer group.”
The trust has the aim of growing its dividend in line with inflation each year, a goal that it has achieved since launch. Close to 70 per cent of its revenues are linked to inflation and based on its current share price, the trust has a prospective dividend yield of 5.7 per cent.
John Laing Environmental Assets has ongoing charges of 1.52 per cent, is trading on a 10 per cent premium to NAV and is not geared.