Baillie Gifford Japan Trust, Fidelity Special Values, Jupiter European Opportunities and Schroder Oriental Income could make valuable addition to your ISA this season, according to FundCalibre's’ Tony Yousefian.
The senior research analyst said investment trusts can offer a number benefits worth considering, including ‘dividend smoothing’, the ability to gear, trading at discounts, and independent oversight.
Yousefian (pictured) said the ability to hold up to 15 per cent of its income in revenue reserves allows the closed-end funds to smooth dividends, allowing them to pay a steady and rising level of income to investors, regardless of the investment backdrop.
Gearing can also allow managers to boost returns in rising markets, said Yousefian, although it can magnify losses during periods of difficulty.
Trading on the secondary market also means that investors can pick up trusts at a discount to the net asset value, permitting better returns than the underlying portfolio when they narrow. Although he warned that they can also widen further.
Oversight by independent boards also ensures that trusts are run in the interests of investors, the analyst said.
Below, Yousefian highlights the four investment trusts he believes investors should consider adding to their portfolios.
Baillie Gifford Japan Trust
First up is the five FE crown-rated Baillie Gifford Japan Trust overseen by veteran manager Sarah Whitley.
“The fund is one of the oldest in the IT Japan sector and has some track record spanning more than 36 years,” said Yousefian. “Baillie Gifford Japan aims for three-to-five year growth through a portfolio of small-to-medium sized companies.”
Performance of fund over 10 years
Source: FE Analytics
He added: “The fund will hold between 40 and 70 stocks at any one time, they are predominantly medium and smaller size companies the managers believe offer good growth opportunities.
“These companies are chosen for their innovative business models, their multiple sources of growth or because they are disrupting traditional Japanese practices.”
The fund top holdings are Softbank Group, Yaskawa Electric, outsourcing services provider Outsourcing Inc and financial services company SBI Holdings.
It should be noted that Whitley, who has run the fund since 1991, is due to retire in April with Mathew Brett set to take over as lead portfolio manager and Praveen Kumar joining him as deputy portfolio manager.
The fund has been top quartile over one, three and five years and is the IT Japan highest returning member over one, three, five and 10 years.
Over ten years, Baillie Gifford Japan Trust has delivered a total return of 406.87 per cent compared with a 248.30 per cent gain for the average IT Japan investment trust, as the above chart shows.
The fund has ongoing charges of 0.78 per cent, is trading on a 5.4 per cent premium to NAV and it is 15 per cent geared data from the Association of Investment Companies (AIC) shows.
Fidelity Special Values
Closer to home, Yousefian has picked out the four FE crown-rated Fidelity Special Values run by FE Alpha Manager Alex Wright since 2012.
Value investor Wright has a bias towards medium-sized and smaller companies seeking out stocks that are unloved and unfashionable.
“Alex aims for long-term growth through a portfolio of predominantly smaller companies which, despite having undergone a rough patch, he believes have the capability to turn their performance around for the better,” Yousefian said.
The analyst also noted that while it does not have an income mandate, Wright has managed to “increase its dividends every year since taking to its helm in 2012”.
Performance of fund under Wright
Source: FE Analytics
Indeed, the fund has delivered a 169.25 per cent total return compared with a gain of 88.17 per cent for the average UK All Companies sector investment trust and a 62.29 per cent for the FTSE All Share benchmark since Wright took over, as the below chart shows.
Fidelity Special Values has ongoing charges of 1.06 per cent, is trading on a 1.7 per cent discount to NAV and it is 9 per cent geared.
Jupiter European Opportunities
The next fund on the list is the four FE Crown-rated Jupiter European Opportunities also overseen by an FE Alpha Manager, Alexander Darwall.
The £827.9m trust is a highly concentrated portfolio of companies, with its top 10 holdings accounting for three-quarters of the overall portfolio.
“Alexander adopts a patient and value-aware approach to company selection which, over his 17-year track record, has proven to be successful and repeatable,” Yousefian noted.
Darwall has overseen the trust since its launch in 2000, during which time it has comfortably outperformed its peers in the IT Europe sector, as the below chart shows.
Under Darwall, Jupiter European Opportunities has delivered a 695.44 per cent total return compared with a 304.86 per cent return for the average IT Europe investment trust and a 171.41 per cent total return for the FTSE World Europe excluding UK benchmark.
Performance of fund under Darwall
Source: FE Analytics
Jupiter European Opportunities has ongoing charges of 0.99 per cent, is trading on a 0.5 per cent premium to NAV and it is 3 per cent geared.
Schroder Oriental Income
Yousefian’s final pick is Schroder Oriental Income, which has been managed by Matthew Dobbs since its launch in 2005.
“The fund aims to provide both growth and income through holding Asia Pacific companies (excluding Japanese equities) which offer both attractive and growing dividend pay-outs,” the analyst said.
The fund currently has a diversified portfolio of 85 holdings including Taiwan Semiconductor Manufacturing, HSBC Holdings, Samsung Electronics, Fortune Real Estate Investment Trust and Midea Group.
“The fund’s diversified portfolio combined with its income focus, gives the trust relative stability compared to many of its peers that invest in the same region,” Yousefian added.
Since Dobbs took over, the fund has returned 301.05 per cent, compared with a gain of 393.23 per cent for its peers in the IT Asia Pacific excluding Japan sector and a 258.36 per cent total return for the MSCI AC Pacific excluding Japan benchmark.
Schroder Oriental Income has ongoing charges of 0.86 per cent, is trading on a 1.4 per cent premium to NAV and it is 6 per cent geared.