Adventurous and conservative investment trust tips
8th February 2017 10:09
by Fiona Hamilton from interactive investor
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Most of our recommendations for conservative and adventurous investors made good progress in the second half of 2016. They were headed by , the redeemable shares in and , all of which have been boosted by the strengthening US dollar.
and have also done well since joining the adventurous portfolio at the start of July.
F&C's relatively low UK weighting has helped it achieve above-average net asset value (NAV) returns for the global sector, and its share price has benefited from a tightening discount. Fidelity Asian Values has continued to perform strongly within the Asia Pacific sector, and has been re-rated.
View our conservative and aggressive investment trust portfolio constituents and performance.
Smaller companies recovery
Our two UK smaller company selections, and , have both consolidated a recovery from their mid-2016 nadir, although their share prices ended the year slightly down due to sharp increases in their respective discounts. Both continue to look good value within their sector.
High-quality, dividend-paying companies look dangerously overvalued
Continued weak runs by European Assets and the UK mainstream combination of and have given us pause for thought.
As noted in our last review, TI&G does not offer a particularly good contrast to EIT, which has been badly off the boil this year due to manager Mark Barnett's longstanding aversion to banks and mining companies.
We are therefore replacing TI&G with , a large, low-cost equity income trust which differs from most of its peers in its commitment to a contrarian, value-oriented approach.
Alasdair Mundy, who has managed Temple Bar since August 2002, believes many of the high-quality, dividend-paying companies that have served UK investors well in recent years look dangerously overvalued.
Unloved companies
He prefers companies that are so unloved that their share prices have more than halved, but which still have decent balance sheets and credible managements.
As a result Temple Bar entered 2016 with substantial exposure to banks (, , , and ), oil and gas ( and ), and food retailers ( and ), plus a stake in .
Mundy hopes the tide is at last turning in favour of value investors.
Despite a nasty post-Brexit vote setback, Temple Bar emerged from 2016 with the best one-year NAV total returns of any mainstream UK trust.
Temple Bar's attractions include ongoing charges of just 0.49%, a dividend yield of 3.3%, an above average discount, and the third-best 10-year NAV total returns in the UK equity income sector despite a poor run in 2014 and 2015.
Mundy hopes the tide is at last turning in favour of value investors. We are hoping his policy of investing in "ugly stocks, with well-aired problems but fairly forgiving valuations" will serve investors well again in 2017.
In Europe we are turning to another value-oriented trust to replace European Assets.
sells on a discount in the mid teens, which seems unjustified given that it has substantially outperformed every other European trust in the five years since Ollie Beckett took charge.
We have hesitated to include it in our portfolio, because our other European selection is also managed by Henderson Global Investors.
However, TR European Growth and Henderson European Focus trust are very different, in that TRG invests predominantly in much smaller companies, it is much more diversified (with nearly 150 holdings), and its gearing is higher at 15%.
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.