Interactive Investor

2014/15 investment trust tips duo make steady progress

3rd February 2015 12:17

Fiona Hamilton from interactive investor

December was a tough month for investors and most of the annual investment trust tips we highlighted in the September 2014 issue suffered setbacks.

However, 13 have beaten the FTSE All-Share index since their performance base date of 1 August 2014, and seven are also ahead of the more successful FTSE World ex UK index.

Our adventurous global choice, Scottish Mortgage, has been the most rewarding to date, although its 3.6% fall in December underpins our warning that its high-conviction approach is liable to result in periods of underperformance.

View our conservative and adventurous investment trust portfolios' holdings and trading chronology here.

Dollar strength

NB Private Equity's 87% exposure to North America means it has continued to benefit from dollar strength. Given its 4% fully covered yield, the shares of our conservative choice in this field continue to look attractive on a 17% discount.

Pantheon International Participations - our adventurous private equity selection - has 54% in the US and has also made good ground. It looks well-placed to make rewarding realisations this year. Iain Scouller of Oriel Securities, who specialises in the private equity sector, rates both our private equity tips a buy.

Allianz Technology Trust, our adventurous specialist choice, is another beneficiary of dollar strength, as the US accounts for 80% of its portfolio. ATT boasts the best three- and five-year net asset value (NAV) returns of the three technology trusts.

Manager Walter Price is excited about opportunities in a widening range of technology sectors, such as healthcare, security and "the connected car".

Henderson Smaller Companies is a more surprising winner. Our adventurous choice has outperformed the Numis Smaller Companies index in 10 of the 11 financial years since Neil Hermon took charge, and looks well-placed to extend its record this year.

Its high weighting in FTSE 250 companies has been an advantage in the last quarter, with NAV returns among the best in the UK smaller companies sector.

Disappointing performers

Several of the most disappointing performers have done very well for us in the past, and we hope they will soon return to form. Baillie Gifford Shin Nippon joined our adventurous roster at 133.8p in 2010 and peaked at 340p earlier this year.

Under manager John MacDougall, BGF's NAV returns over the past five years have been outstanding. However, returns from the trust have been less exceptional over the past year, which has undermined the share's premium rating.

Shares in Lowland Investment stormed ahead after joining our roster at 656p in 2010. They suffered a dull 2011, then shot up again to a peak of 1,545p in early 2014. Manager James Henderson is confident his near 25% weighting in industrials is under-appreciated by the market, and that medium to smaller companies offer great opportunities.

Templeton Emerging Markets boasts the best one-year NAV returns in the global emerging markets sector, but share price returns from our adventurous choice have been undermined by its widening discount.

Share buybacks should restrict any further deterioration in its rating and its portfolio should benefit from the lower oil price. Asia accounts for 60% of the portfolio and manager Mark Mobius hopes further quantitative easing in Japan will be "highly significant for south-east Asia".

Prospect Japan (PGF) was new to the conservative portfolio in August. However, we are dropping it partly because we are uncomfortable with the decision to invest nearly a quarter of assets in unlisted convertible bonds in Prospect Co, a listed real estate developer which is the ultimate parent company of the fund's investment manager, and partly to make room for Aberdeen Japan (AJIT).

AJIT changed its remit from pan-Asia to Japan-only in October 2013. It has performed exceptionally well over the last year, largely due to good stock selection but also reflecting its ability to hedge around half its underlying yen exposure into sterling.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.