Allianz Technology Trust, Edinburgh Worldwide and Syncona are the three of the best growth trusts for investors with a long-term view, according to BMO Global Asset Management’s Peter Hewitt.
The manager of the F&C Managed Portfolio Trust Growth and F&C Managed Portfolio Trust Income said in the past few years the gap between the two styles has grown to its widest in 10 years.
“For the first five years it was mainly income outperforming but growth has just stormed it in recent years,” Hewitt said.
Within the portfolio this has been reflected in the growth trust’s top 10 holdings, with originally smaller stakes in dedicated healthcare and technology trusts pushing their way into the largest holdings.
“You can see there is a common theme within the growth portfolio and actually technology and healthcare/biotechnology trusts are all in the top-10 and it is not because I have been buying more of them,” he said.
Below, BMO Global Asset Management’s Hewitt highlights three trusts that have been staples within his growth portfolio and that he would recommend for investors taking a long-term time horizon.
First up is Allianz Technology Trust, managed by Walter Price in San Francisco, which Hewitt said gives the team an advantage.
“The reason I like that as opposed to [being managed] out of Edinburgh or London they are so close to Silicon Valley and he can go down the road [to visit companies]. They are right there and they very experienced campaigners,” he said.
While the trust is populated with big technology names such as Amazon, Microsoft and Facebook, it has a multi-cap approach including a number of mid- and small-cap names.
The majority of the four FE Crown-rated portfolio is centred around the US (90 per cent), although there are a few names spread across Europe (4.3 per cent) the UK (2.5 per cent) and Asia.
It is now the third-largest holding in the trust, despite the manager not buying another share since his initial investment eight years ago.
Performance of fund vs index over 5yrs
Source: FE Analytics
Over the past five years, the trust has outperformed the FTSE All World Technology index by 70.14 percentage points, as the above chart shows. It should be noted, however, that the trust is benchmarked against the Dow Jones World Technology index, unavailable on FE Analytics.
But for the first time in a few years, Hewitt said that Price got “quite excited” when discussing the future prospects for the sector.
Hewitt noted: “He [Price] said ‘I’ll be honest with you it is only in the last year or so that the wider technology is now disrupting so many sectors – not just ones like Amazon disrupting retail – and across the board’.
“On top of that they are creating new sectors in robotics, software, digital payments, AI [artificial intelligence], et cetera.”
Price has taken small positions in young companies in Silicon Valley and while one or two might fall by the wayside and some might get bought out by Google, others have the potential to “go through the roof”.
The £463m trust has ongoing charges of 1.15 per cent and its shares are trading on a 4.8 per cent premium to its net asset value (NAV), according to data from the Association of Investment Companies (AIC).
Up next is Edinburgh Worldwide another trust that the manager rates highly. The trust has squeaked into the top 10 holdings despite Hewitt not adding to it since the initial, small investment.
Hewitt said: “I have owned this for three or four years and I am astonished it is in the top-10 because I put it in as quite a small holding and it has just gone up so much.”
Indeed, the five FE Crown-rated trust, managed by FE Alpha Manager Douglas Brodie, has gained 176.12 per cent over the last half-decade.
Performance of fund vs sector over 5yrs
Source: FE Analytics
One of the particular draws to the trust is its long-term time horizon, which considers investments over 20 years rather than five or 10 years.
An example of this is its long-standing position in UK company Ocado, which has struggled for many years and is in fact one of the most-shorted stocks on the London Stock Exchange.
“This thing [Ocado] is a genuine disruptor,” explained Hewitt. “For years it was ‘can they sign up new clients?’ and they couldn’t and it looked horrendous yet now all of a sudden there are half a dozen food retailers across Europe and two in America that have signed up for its technology.”
He said: “At any one time you could have pressed stop and think it hasn’t got any profits and not got that much revenue so it has got to be a sell but in actual fact it is probably the best performer in FTSE this half-year because it has all come right for it.”
This is typical of the holdings in the portfolio, the BMO manager said, as it is a compelling technology stock still under $5bn which has grown into its valuation over time.
One thing to note however is that the trust will be more volatile, given the nature of investing in such businesses.
“There are lots of interesting names in there and they are very exciting. Yes, it is high risk but they have a portfolio of 75-125 names in there,” said the BMO manager.
“It will be volatile but I just feel in a relatively low growth world actually they are quite clearly focusing on things that are offering real growth and disruption or changing existing sectors or creating new ones,” Hewitt said.
Edinburgh Worldwide is trading on a premium of 2.5 per cent to NAV and has ongoing charges of 0.87 per cent.
Last up is Syncona, formerly known as the Battle Against Cancer Investment Trust (BACIT) which is a combination of the trust and the biotechnology division of charity the Wellcome Trust.
Started by Tom Henderson, BACIT was made up of a collection of hedge funds, which offered capacity for cheap or no fees. In return the trust donated 1 per cent of NAV to the cancer charities.
Hewitt said: “Hedge funds are all well and good although the charges detract from performance but there are no charges in this so I bought it.”
In 2016, the merger was announced that saw the Wellcome Trust’s portfolio of around eight biotechnology companies rolled into the portfolio.
“They reversed that portfolio into BACIT and got paid in shares. So, Wellcome Trust own 33 per cent of it and will be in it forever,” the manager said.
As such, around half of the trust is biotech and the other half in hedge funds – although this portfolio will be wound down as new ideas are found.
Performance of fund vs sector since merger
Source: FE Analytics
Since the merger, the trust has returned 108.65 per cent to investors and Hewitt noted that despite the trust’s large premium (63 per cent) it remains compelling.
“British universities are fantastic at coming up with the ideas and patenting it and never taking it through because they get bought out,” he said.
“The guys from the Wellcome Trust are really experienced in the field of biotechnology but they don’t just invest in a new idea, they actually send in people to run the commercial operations.
“They’ve got a number of experienced executives that have taken companies through and now two of the seven have been listed on NASDAQ – Nightstar and Autolus.”