The IT Global sector is the largest in the AIC universe as it is home to more than 30 closed-ended funds and though the broker’s research team admit that many investors may look elsewhere for opportunities, certain members of the sector are perfect for those who want core exposure to the market.
“In our view, the global growth funds are attractive long-term savings vehicles for private investors. Despite their reputation as dull investments, the sector has significantly outperformed the major indices over the long term,” the analysts said in their 2015 outlook.
With that in mind, they highlight the five IT Global trusts – all with different risk profiles – that they think long-term savers should consider for their portfolios.
Scottish Mortgage
First on the list is Scottish Mortgage IT, which has been headed up by the highly-rated James Anderson since April 2000. The team at Numis rate the trust highly, but recommend it for investors who are willing to stomach volatility.
“Scottish Mortgage benefits from low fees and has a unique approach with a concentrated portfolio of growth stocks focused on two core themes: the emergence of China and disruptive technology,” Numis said.
“We believe that the vehicle is attractive so long as investors understand its risk profile.”
According to FE Analytics, it has topped the sector over 10 years with returns of 342.99 per cent, beating its benchmark – the FTSE All World index – by more than 200 percentage points in the process.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
However, due to the trust’s bias towards high growth, but often higher risk, assets such as tech and emerging market equities, it has had one of the worst maximum drawdowns, which measures how much an investor would have lost if they bought and sold at the worst possible times, in the sector over 10 years as it tends to underperform in falling markets.
Anderson is likely to retire over the coming years, especially given that Tom Slater has recently been promoted to co-manager. Nevertheless, Numis likes the trust and likes its succession plan given Slater’s experience and the investment approach is well defined.
Scottish Mortgage is currently trading on a 2 per cent premium, however. It’s geared at 15 per cent and has ongoing charges of 0.5 per cent.
Personal Assets
“At the other end of the risk spectrum is Personal Assets, which takes a cautious approach and emphasises capital protection,” Numis said.
Personal Assets is one of the most popular investment trusts with private investors, as a result of its long-term capital preservation profile and as the board exercises a very stringent zero discount policy.
The trust has been headed up by Trojan’s Sebastian Lyon since March 2009.
While its returns since then have had very little volatility, the manager’s focus on protecting capital means it has underperformed since he took charge – a period which has been categorised by strong equity returns.
Performance of trust vs sector and index since March 2009
Source: FE Analytics
However, Numis still rates the trust highly, especially as Personal Assets proved its worth during last year’s tough market conditions.
“The fund had a difficult 2013 due to its exposure to gold and TIPs, but its NAV rose 7.2 per cent in 2014, an impressive outcome relative to the FTSE All Share total return of 1.2 per cent,” the broker said.
“We continue to regard it as an attractive savings vehicle for cautious investors. At present, 44 per cent of assets are invested in equities, with 17 per cent in US TIPS, 5 per cent in UK index-linked gilts, 10 per cent in gold bullion and 25 per cent in cash.”
Personal Assets isn’t geared and has ongoing charges of 0.91 per cent.
Caledonia Investments
Numis also rates Caledonia Investments, especially as its management team have recently made efforts to simplify the investment approach.
“One of the best performing global funds last year was Caledonia Investments, helped by a disposal of two unquoted investments – Oval and Amber Chemical – which added 2.6 per cent to NAV,” Numis said.
“This has acted as a catalyst for the discount to narrow from over 20 per cent, but it remains wide relative to peers at 12 per cent. We are impressed by the changes that Will Wyatt has made since taking over as CEO in mid-2010.”
“The portfolio is now far more focused, with four clearly defined pools: quoted equities, unquoteds, funds and income and growth. As a result, we believe it is now a far more attractive vehicle for long-term investors.”
One of the major reasons why Caledonia could be a decent option for long-term investors is it is effectively a savings pot for Cayzer family, who are majority shareholders, meaning that the managers are unlikely to make too many high risk decisions.
Though the portfolio has underperformed over the longer term, it has bounced back strongly since Wyatt took charge and is top quartile over one and three years. It has also been top quartile for its Sharpe ratio over three years, which measures risk-adjusted returns.
Caledonia has ongoing charges of 1.03 per cent and isn’t geared.
RIT Capital Partners
RIT Capital Partners is another option for investors looking for decent long-term risk adjusted returns, according to Numis.
“RIT Capital Partners has an exceptional long-term track record through an unconstrained investment approach seeking to deliver long-term capital growth, whilst preserving shareholders’ capital.”
“Since inception in 1988, the fund has participated in 70 per cent of the market upside, but only 38 per cent of the downside, with an annualised NAV return of 11.5 per cent pa.”
Our data on the trust – which is chaired by Lord Rothschild – only spans back to January 1995. Nevertheless, RIT Capital Partners has returned 820.62 per cent over that time, considerably outperforming global equities in the process.
Performance of trust vs index since Jan 1995
Source: FE Analytics
Numis says the managers seek to construct their portfolio after identifying key macro themes. They will invest across listed and non-listed companies and will use specialist third party-managers.
They added: “There is active management of currency exposure and market risk may be also hedged. In 2014, the portfolio was focused on the US dollar and sterling with short exposure to the euro.”
“There was a significant increase in exposure to absolute return strategies from 7 per cent to 17 per cent over the year.”
RIT Capital Partners is currently trading on a 3 per cent discount, has high gearing of 21 per cent and ongoing charges of 1.25 per cent, excluding its performance fee.
British Empire Securities
The final trust on the list is John Pennink and Joe Bauernfreund’s British Empire Securities, which Numis describes a decent value play given its 11 per cent discount.
“It has an impressive long-term track record, through a bottom-up stock picking approach, focused on funds/companies trading on wide discounts to NAV with potential catalysts for those discounts to narrow,” the analysts said.
Though the trust has performed well over the longer term – it is one of the sector’s best performers over 15 years with returns of 329.26 per cent – it has largely struggled over recent years due to its value-orientated approach.
Performance of trust vs sector and index over 15yrs
Source: FE Analytics
However, given that the average holding in the portfolio is on a 26 per cent discount, the team at Numis say now is one the best times to invest in British Empire Securities.
“British Empire has an interesting mandate that is clearly differentiated from other global growth funds and we believe it remains an attractive investment,” it said.
“The portfolio is currently biased towards holding companies, particularly in Europe and Asia, but the weighting in closed-end funds has increased to 35 per cent and includes a number of listed PE vehicles.”
British Empire Securities has 1 per cent gearing and ongoing charges of 0.9 per cent.