Following the resignation of UK prime minister Theresa May amid ongoing Brexit troubles and the European parliamentary election results pointing to an increasingly polarised Britain, Interactive Investor has selected five funds and trusts that could thrive despite the potential for further market uncertainty.
With May set to step down in a matter of days, many expect that the next prime minister could be a hard Brexiteer, stiffening Britain’s negotiating position and making a ‘no deal’ Brexit – and its unpalatable impact on the business and investment environment – more likely.
However, despite the gloomy forecast, opportunities will continue to exist in an economy that many regard as fundamentally sound.
The trick is to find fund managers whose proven track records suggest they would be able to navigate the perilous waters that seem to lie just around the corner.
Below, investment platform Interactive Investor highlights five managers that might just do the trick.
Herald Investment Trust
First on the list is the £908.9m Herald Investment Trust, which has been managed by Katie Potts since its February 1994 launch.
The unconstrained global smaller companies trust invests principally in the communications, multimedia, and technology sectors.
Rebecca O’Keeffe, Interactive Investor’s head of investment, said: “Whilst past performance is no guide to the future, and this trust is at the racier end of the investment spectrum, manager Katie Potts has significantly outperformed the wider investment trust sector over the last 10 years.”
Given its specialist mandate, she added, Herald Investment Trust has always tended to “sit on a stubbornly wide discount”.
Indeed, the trust currently trades at a 13.1 per cent discount to net asset value (NAV), compared to the sector average discount of 5.6 per cent.
“Potts has recently marked her 25th anniversary managing this trust, and in my view is one of the unsung heroes of the investment trust sector,” O’Keeffe added.
Performance of trust vs sector since EU referendum
Source: FE Analytics
Over 10 years, Herald Investment Trust has made a return of 447.56 per cent against a 296.42 per cent gain for the average IT Global Smaller Companies peer and a 206.28 per cent return for the Numis Smaller Companies + AIM Excluding Investment Companies benchmark.
The trust is not geared and has ongoing charges of 1.15 per cent.
City of London Investment Trust
Next comes the £1.7bn City of London Investment Trust, dedicated to providing long-term growth in income and capital by investing predominantly in UK-listed stocks.
Managed by veteran manager Job Curtis since 1991, the UK equity income trust continues to recognise the importance of dividend income to shareholders.
“With 27 years managing City of London under his belt, Curtis has played a major role in helping this company deliver over half a century of uninterrupted dividend increases despite the many crises experienced during that time,” O’Keeffe said.
“Curtis combines consistent long-term outperformance with a capital preservation mindset, which allows investors to grow their wealth without taking on excessive levels of risk,” O’Keeffe said.
Over the past decade the City of London Investment Trust has returned 205.44 per cent to investors against a 182.57 per cent rise for the average IT UK Equity Income trust.
The trust has a yield of 4.7 per cent, trades at 1.8 per cent premium to NAV, is 11 per cent geared and has ongoing charges of 0.41 per cent.
Scottish Mortgage Investment Trust
The third selection is the £7.6bn Scottish Mortgage Investment Trust, a high-conviction, global equity strategy managed by James Anderson and Tom Slater.
Dzmitry Lipski, investment analyst at Interactive Investor, said: “The largest investment trust in the sector and the most popular trust of Interactive Investor customers, this is a flag-bearer for Baillie Gifford’s recent campaign to promote ‘actual’ investing – deploying cash into tangible, sustainable activities that allow companies to grow and prosper.”
Anderson and Slater target a greater return than the FTSE All World benchmark over a five-year rolling period.
Performance of trust vs sector & benchmark over 5yrs
Source: FE Analytics
Up to 25 per cent of the Scottish Mortgage portfolio may be invested in companies that are not listed on public markets, given it exposure to future growth prospects.
The five FE Crown-rated trust is currently 1 per cent geared, trades at a 10.5 per cent discount to NAV, has a 2.7 per cent dividend yield, and ongoing charges of 0.45 per cent.
Fundsmith Equity
The first open-ended selection is the £17.6bn Fundsmith Equity, a five FE Crown-rated long-only global equity fund overseen by veteran investor Terry Smith.
The FE Alpha Manager adheres to stringent criteria that aim to identify high quality businesses able to sustain a high return on capital employed, with advantages that are difficult to replicate and do not require significant leverage to generate returns.
Since launch in November 2010, Fundsmith Equity has made a total return of 343.97 per cent compared with a 157.16 per cent gain for the MSCI World benchmark and a 113.82 per cent return for the average IA Global peer.
Performance of fund vs sector & sector since launch
Source: FE Analytics
“With trade wars having been a key investor concern over the last year or so, investors need a manager who is resilient, focused and committed,” Lee Wild, head of equity strategy at Interactive Investor said.
“These traits are met and exceeded by Terry Smith, who has long recognised the value of picking global growth companies that are good value and building a long-term portfolio with them.”
He added: “With plenty of his own skin in the game, investing his own money alongside investors, Smith has an alignment of interests that many will appreciate.”
Fundsmith Equity has an ongoing charges figure (OCF) of 1.05 per cent.
LF Lindsell Train UK Equity
Last, but not least, comes the £6.8bn, five FE Crown-rated LF Lindsell Train UK Equity fund, overseen by Nick Train, which aims to deliver capital and income growth and targets a total return in excess of that of the FTSE All Share index.
“Manager, Nick Train, stresses that he cares more about maintaining or growing the real value of investors’ capital and income over time than outperforming a stock market index, but that hasn’t stopped the fund being a runaway success,” said Interactive Investor’s Lee Wild.
“Its stellar performance makes it a firm contender for investors who are hoping that the UK stock market is finally going to come out of the shadows of Brexit and UK political turmoil.”
Since launch in July 2006, the fund has returned 362.34 per cent compared with a 111.82 per cent gain for FTSE All Share benchmark and a 109.94 per cent return for the average IA UK All Companies peer. LF Lindsell Train UK Equity has an OCF of 0.68 per cent.