Investment trusts across a number of asset classes, including Asia, the UK, Europe and emerging markets, have been awarded a star rating between three and five, which is calculated through a mixture of qualitative and quantitative analysis. In total, 79 trusts made it onto the list.
Emerging market trusts proved particularly successful in the upgrade, with many hoping to fill the void left by a number of soft-closed open-ended funds including Aberdeen Emerging Markets.
"Emerging markets are out of favour, with multiples looking cheap, and you could well get an additional valuation kicker by scooping up closed-ended funds at a discount," said Hollands (pictured). "One candidate as a core emerging market holding is Richard Titherington’s JP Morgan Emerging Markets IT, which is currently trading at an 11.5 per cent discount to NAV."
This discount is wider than its one- and three-year average, according to the AIC. While like all emerging markets portfolios, the trust has struggled on an absolute basis of late, it has fared better than its MSCI Emerging Markets benchmark over one and three years.
Performance of trust and index over 1yr
Source: FE Analytics
"We also highlight the Asian Total Return Company as an option for investors wanting a defensive strategy for accessing the Asian market," added Hollands.
FE Trustnet senior reporter Thomas McMahon profiled Robin Parbrook’s trust in a recent article.
Looking elsewhere at developing markets, the BlackRock Frontiers IT, Genesis Emerging Market IT, Advance Developing Markets IT and Utilico Emerging Markets IT also made it on to the recommended list.
Hollands believes a greater number of groups need to look more closely at investment trusts, given how many good options there are for investors.
"We have long research-rated investment trusts so there has been no push per se, but of course this does distinguish us from many other providers who have not recommended any, at a time when I sense there is some scepticism towards how funds arrive on buy-lists," he explained.
"As most fund managers disappoint over the long-term and only a tiny proportion of the universe will get a buy-rating from us, the starting point in the search for quality investments needs to be as wide a trawl as possible."
"Blanking the entire investment trust market, when clearly they often offer better returns for investors, simply doesn’t stack up in the interests of clients," he added.
Elsewhere, the most significant downgrade in the latest rebalancing was for the Jupiter Absolute Return fund, which fell from four stars to two. BlackRock UK Income, Neptune European Opportunities and JPM Europe Smaller Companies also fell from a buy-rating, as did Schroder UK Alpha Plus and Cazenove European, though these last two have only been suspended due to changes in management.
No investment trusts were downgraded, though a number have been upgraded to the buy-list. These include the Polar Capital Global Financials Trust, Greencoat UK Wind IT and Henderson European Focus IT.
While a number of the trusts have four stars to their name, only three have the maximum of five – BH Global, BH Macro and Bluecrest AllBlue.
All of these sit in the IT Hedge Funds sector – very pertinent, given that there is no direct way to get exposure to hedge fund strategies by investing in funds in the IMA universe.
