"People have a tendency to look at past performance when they look at investment trusts, which is why the likes of the Aberdeen Asian Smaller Companies IT and Scottish Oriental Smaller Companies IT are so popular," he said.
"A lot of this has to do with how well the asset class has done, but that doesn’t mean it will continue to be a good place to be."
Peters points out that trusts that have done very well naturally trade on narrower discounts and even premiums, and though he himself says he does not prioritise those on a steep discount, he says it is always a bonus to find a trust that is cheap relative to its net asset value (NAV).
Peters and fellow investment trust expert Charles Cade highlighted some out-of-favour trusts that they still rate highly, and that could be due a turnaround in performance.
EP Global Opportunities IT and The European Investment Trust
"I feel like I’m pretty much out on my own in liking the trusts run by Edinburgh Partners," said Peters.
"Trusts that look for stocks on low price/book values have been a bad place to be, because everyone has wanted quality growth, which has consequently done very well."
"I think you’re going to see a role-reversal at some point, and when this happens it will benefit these trusts."
Performance of trusts and benchmarks
| Name | 1yr | 3yr | 5yr | 10yr |
|---|---|---|---|---|
| EP Global Opportunities Trust | 31.17 | 27.28 | 51.84 | N/A |
| FTSE All-World Index | 23.6 | 32.61 | 42.65 | 137.45 |
| The European Investment Trust | 32.38 | 32.7 | -4.45 | 95.7 |
| FTSE World Europe EX UK Index | 37.25 | 29.86 | 17.2 | 143.51 |
Source: FE Analytics
"Performance has been OK – not great – for the reasons I said above, but you’ve seen a big improvement recently. Is this a turning point? Perhaps."
"Year-to-date, the EP Global trust is top of its sector in NAV terms, with returns of 17 per cent. It has a lot in Japan, which has helped, and in general is quite contrarian in its view."
Our data shows the trust has returned 15.29 per cent overall, beating its FTSE All World benchmark by 3.42 percentage points.
Performance of trusts and benchmarks in 2013
Source: FE Analytics
"I like the style and manager, and it is one that might come back in to fashion," he added.
The EP Global Opportunities trust has been headed up by Sandy Nairn since 2003. It has underperformed both its FTSE All World benchmark and IT Global Growth sector average over a three-year period, but is ahead over one and five years.
Its biggest regional position by some distance is Japan, which has a 37 per cent weighting. Next is the US with 16 per cent, and Hong Kong with 8 per cent. The UK only has a 6 per cent weighting, so it could be an interesting choice for investors looking to diversify away from this market.
It is currently on a discount of 5.1 per cent, according to the AIC, and has ongoing charges of 1.05 per cent. It does not charge a performance fee.
Dale Robertson has headed up The European Investment Trust since early 2010. It has returned 25.37 per cent over this time, performing roughly in line with its benchmark, albeit with more volatility.
Germany is Robertson’s biggest country weighting, though the manager has a significant portion of assets in peripheral Europe. Italy and Spain have a weighting of 12 and 11 per cent, respectively.
The trust is currently trading on a discount of 16.1 per cent and has ongoing charges of just 0.63 per cent.
BlackRock World Mining IT
The mining sector has been out of favour for some time, with the HSBC Global Mining index down around 18 per cent over a one-year period, and 28.38 per cent over three years.
The largest and highest profile investment trust in this sector – Evy Hambro’s BlackRock World Mining IT – has performed even worse over the last 12 months, but Peters think both the sector and trust could be at a good entry point.
"The trust has been a disappointing performer in the last few years," he said.
Performance of trust vs sector over 1yr
Source: FE Analytics
Peters points out the trust has underperformed by an even greater extent in NAV terms. Our data shows the trust’s NAV is down more than 25 per cent over the last year.
"Given how highly the team is regarded, we’d expect this performance to improve. They’re not hiding under a rock and are very open and transparent about their underperformance, which is a good thing."
"If you have a view on global growth and think it it improving, then the world is going to need more copper, iron and so on. If this is the case, at some point you should see improvements in the asset class."
"It could be a very interesting area to be in."
Peters says the fact the trust has a healthy yield is also an encouraging sign.
"The trust is on a discount of around 8 per cent, and is yielding 4.5 per cent; I wouldn’t call this an each-way bet because I don’t see the discount moving very much, but it means you’ve got room for error," he said.
Hambro’s £979m trust has ongoing charges of 1.42 per cent, and is 8 per cent geared.
Herald Investment Trust
Numis’s Charles Cade likes Katie Potts’ Herald Investment Trust, which sits in the IT Small Media Comms & IT sector. It invests predominantly in small cap tech stocks.
"It’s been fairly dull of late," he said. "Performance has been very strong over the long-term and though the shorter term hasn’t been bad, technology hasn’t been particularly in demand because it doesn’t tap in to the income theme, and is quite a niche area."
"Katie Potts has a very strong track record in the UK and US small cap market, and I think it’s still a good long-term growth story."
The £576m Herald Investment Trust has returned more than 130 per cent over the last decade, but more recently it has struggled. It is down over one, three and six months.
It is currently on a discount of 19 per cent and has ongoing charges of 1.07 per cent.
Baker Steel Resources IT
Although Cade says the Baker Steel Resources IT is a hugely speculative play, he believes it presents an opportunity for investors who want exposure to the out-of-favour commodities sector.
"In some ways this is very interesting, given that it’s a very concentrated portfolio and on a discount of 40 per cent," he said.
"The management team [David Baker and Trevor Steel] have a very good long-term record in this area, so it’s interesting if you like the asset class."
"It’s worth pointing out that it’s got a very different risk profile to the BlackRock World Mining trust, as it’s so concentrated," he added.
More than 99 per cent of the trust’s £72.5m assets are invested in the top-10 holdings, including a 34 per cent position in Ivanplats, an African miner of various minerals.
Performance of trust vs index over 3yrs
Source: FE Analytics
A miserable time for natural resources, a widening discount and the high concentration of stocks have resulted in the trust losing more than 44 per cent over a three-year period.
It does not list a benchmark, but by point of reference, the HSBC Global Mining index is down 28.05 per cent over the period.
However, trading on a discount of 41.5 per cent, according to the AIC, it is a possible value play for adventurous investors with a strong view on the sector.
The Baker Steel Gold IT has ongoing charges of 2.03 per cent.
