Temple Bar, Fidelity Special Values, Templeton Emerging Markets and BlackRock World Mining are among several additions to the Winterflood Investment Trusts model portfolio, following a review at the start of 2020.
The firm saw 71 per cent of the total number of trusts outperform their relevant peer groups in 2019 in a strong year for the firm’s model portfolio, which rose by 22 per cent.
Source: Winterflood Investment Trusts
“2019 was a good year for investors in investment companies, with the sector benefiting from narrowing discounts and rising premiums,” Winterflood’s analysts noted.
“44 per cent of funds generated share price total returns of 20 per cent or more, while only 16 per cent saw negative returns.”
Nevertheless, Winterflood has made a number of changes to its model portfolio at the start of 2019, with 13 trusts making way for 14 additions.
UK equities
There were several changes to the UK equity portion of the portfolio, with the first being the switching of Mark Barnett’s Perpetual Income and Growth for Alastair Mundy’s Temple Bar Investment Trust.
The firm highlighted the poor performance of Perpetual Income and Growth in recent years and the need for an extended period of outperformance before shares re-rate.
While the trust should benefit from a recovery in UK stocks, the firm said Temple Bar would offer exposure to UK domestic, value-orientated names.
Performance of trusts over 3yrs
Source: FE Analytics
Another change in the UK equity space involved swapping Aurora Investment Trust for Alex Wright’s Fidelity Special Values. Winterflood analysts noted the volatility of the former’s share price and stock-specific risk given the highly concentrated nature of its 15-strong portfolio.
As such, the firm added Wright’s Fidelity Special Values, which follows a similar value/contrarian approach but is more diversified with 90 holdings and a greater exposure of mid- and small-caps.
There was also a change in the small-cap space as the firm opted for Invesco Perpetual UK Smaller Companies over veteran investor Harry Nimmo’s Standard Life UK Smaller Companies Trust.
In addition, Schroder UK Public Private Trust – formerly known as Woodford Patient Capital – exited the model portfolio following a tough year for the trust performance-wise and the replacement of veteran investor Neil Woodford as manager.
International equities
In the international equities space there were also a number of changes.
The first was the switching from Mid Wynd International after just one year in the portfolio to Martin Currie Global Portfolio.
Although a strong performer, the firm opted to add Zehrid Osmani’s Martin Currie Global Portfolio to its list of trusts following a repositioning that sees the fund focus on undervalued growth stocks.
“Performance has been good and we could see the fund growing through issuance given its zero discount policy,” he said.
In Europe, Winterflood replaced European Opportunities following the decision of manager Alexander Darwall to leave asset management house Jupiter last year and start his own firm.
Instead, the firm is backing Henderson Euro Trust, which has performed well under new lead manager Jamie Ross who took over as sole manager n February 2019 following Tim Stevenson’s retirement – although Ross has worked on the trust since September 2018. In addition, it trades at a wider discount than the peer group.
Performance of Henderson EuroTrust under Ross
Source: FE Analytics
Another switch occurred in the North American part of the portfolio, as the firm replaced North American Income Trust for JPMorgan American, having been impressed by new managers Jonathan Simon and Tim Parton.
“In our opinion, the new approach represents a more actively managed strategy than was previously the case and allows the fund do benefit from the stockpicking abilities of two experienced managers, while essentially negating their style biases,” the Winterflood analysts noted.
Another change saw Baillie Gifford Japan enter the portfolio in place of JPMorgan Japanese, as the former trades at around net asset value (NAV) to offer an attractive entry point and boasts a strong track record.
Further afield, Asia Dragon Trust has been added to the portfolio in place of Schroder Asian Total Return while BlackRock Frontiers has made way for Templeton Emerging Markets (TEMIT).
Both Schroder Asian Total Return and BlackRock Frontiers were trading at premiums to NAV prompting the switches into Asia Dragon and TEMIT.
Specialist and alternative strategies
Among the specialist and alternative strategies part of the portfolio, Winterflood also made several changes.
Private equity vehicle Pantheon International was switched for HarbourVest Global Private Equity, while in the infrastructure allocation JLEN Environment Assets made way for HICL Infrastructure.
Additionally, Winterflood swapped Tritax Big Box REIT for Residential Secure Income following a re-rating of the former.
In the specialist equity space, the firm switched from BlackRock Energy & Resources Income to BlackRock World Mining.
“These funds are managed by the same well-resourced team but the latter offers a larger, more liquid vehicle, with a broadly comparable yield,” they noted.
It also added the Aberdeen Diversified Income & Growth trust – a multi-asset strategy with an absolute return objective – overseen by Mike Brooks and Tony Foster.
Bonds
Finally, the firm added to its fixed income holdings in the portfolio with the addition of BioPharma Credit, which at 7.1 per cent offers an attractive yield and an entry point for investors with the trust trading at around NAV levels.
Discount/Premium of BioPharma Credit over 5yrs
Source: FE Analytics
“The fund has performed well since launch, generating an annualised NAV total return of 7.5 per cent,” Winterflood analysts noted. “This is below its medium-term target of 8-9 per cent but includes the initial investment period.”