It has been a torrid few days for stock markets as fears of a trade war between the US and its major European trading partners rose – and then de-escalated.
For long-term investors, the best strategy has been to remain invested. After all, short-term market volatility is the price investors must pay for investment rewards further down the line.
Yet, as ever, during times of uncertainty, investors should ensure their portfolios – Isas and self-invested pensions – are broadly diversified. That means exposure to gold – heading towards $5,000 (£3,720) an ounce – as well as a spread of UK and international equities.
With continued concerns that the US stock market remains expensive – and maybe due a correction – it’s essential investors are comfortable with the amount of money they have invested in US equities, and in particular the Magnificent Seven stocks.
For those keen to reduce their dependency on the US, there are alternative markets which look attractive – the UK and emerging markets in particular.
Furthermore, if accessed through a stock market-listed investment trust, buyers can buy these markets on the cheap.
This is because the share prices of many trusts investing in the UK and emerging markets do not fully reflect the value of the underlying assets. They stand at what is called a ‘discount’.
Any narrowing of these discounts in the months ahead would provide a performance fillip to investors who buy these trusts now while they are cheap.
ABERFORTH SMALLER COMPANIES is the biggest trust fishing among UK smaller companies for investment returns, with asset manager Jupiter and pub group Marston’s among its top holdings
For MERCANTILE, nine of the trust’s top ten holdings are FTSE250 listed: the likes of furniture retailer Dunelm and housebuilder Bellway Homes
Here we identify nine investment trusts which financial experts believe could boost your portfolio in the short and long term. Prices correct at the time of writing.
UK
Wealth’s experts identify five UK-invested trusts with compelling investment cases – and where their shares stand at bargain prices.
The first is MERCANTILE, a £1.8 billion fund managed by JPMorgan Asset Management. Its shares trade at a 9.6 per cent discount, but the trust has other attractions.
For a start, its focus is on medium and smaller UK companies – stocks which generally have not enjoyed the gains made by many FTSE100-listed businesses.
Nine of the trust’s top ten holdings are FTSE250 listed: the likes of furniture retailer Dunelm and housebuilder Bellway Homes.
‘Not only are the shares of the companies that Mercantile invests in attractively priced,’ says Jason Hollands of investing platform Bestinvest, ‘but the trust’s shares can be snapped up at a significant discount, providing an extra layer of opportunity.’
The fund’s annual charges are competitive at 0.48 per cent and it has 12 years of dividend growth under its belt. Twelve should become 13 when it pays its final quarterly payment in early spring. Priced at just below £2.70, the shares provide a 3 per cent annual income.
Over the past one and five years, Mercantile has generated respective total returns of 15.6 and 32.2 per cent – less than from the FTSE All-Share (22.3 and 72.9 per cent).
Kate Marshall, lead investment analyst at Hargreaves Lansdown, says of ARTEMIS UK FURUTE LEADERS: ‘The trust’s management was handed over to Artemis’s Mark Niznik and Will Tamworth in March last year, two highly experienced investors in UK smaller companies’
Trusts with a focus on smaller UK companies are also attractive. With a market value of £1.3 billion, ABERFORTH SMALLER COMPANIES is the biggest trust fishing among UK smaller companies for investment returns, with asset manager Jupiter and pub group Marston’s among its top holdings.
Returns have been strong, when compared to its peer group. Respective one and five-year returns of 19.2 and 60.6 per cent are superior to those from the average UK smaller companies trust of 15.3 and 32.6 per cent. Despite this, the shares trade at a 9.5 per cent discount.
This discount, says funds expert Kyle Caldwell of investing platform Interactive Investor, provides ‘investors with an even cheaper way to own a collection of companies that are already cheap’. This, he adds, ‘could translate over time into compelling returns’.
What makes this trust a standout UK smaller companies fund is that the investment manager – Edinburgh-based Aberforth Partners – focuses exclusively on small UK-quoted companies. Its six-strong investment team are also big investors in the funds they run, thereby aligning their personal financial interests with investors.
Recent research on the trust by Kepler Partners says its ‘nuanced take’ on the investment opportunities in the UK small-cap space ‘could support returns going forward’. The trust has grown its dividends for 14 years. In the last financial year, the total payment was 49.6p a share. With a share price of £16.56, it offers an annual dividend yield of 2.6 per cent. Annual charges total 0.78 per cent.
Another UK smaller companies trust with shares standing at an attractive 11.4 per cent discount is ARTEMIS UK FUTURE LEADERS.
Although this £116 million fund is a minnow, it’s now under new management (it was previously Invesco Perpetual UK Smaller Companies).
Kate Marshall, lead investment analyst at Hargreaves Lansdown, says: ‘The trust’s management was handed over to Artemis’s Mark Niznik and Will Tamworth in March last year, two highly experienced investors in UK smaller companies.
‘The share price discount has narrowed slightly since they took charge, but there is room for it to come down further if the managers can turn performance around.’
Dividends are paid quarterly with the aim of providing a 4 per cent annual dividend yield. The fund’s annual charges are 0.84 per cent.
JPMORGAN UK SMALL CAP GROWTH & INCOME is described by AJ Bell’s Dan Coatsworth as ‘among the elite options’ for investors to consider in the UK smaller companies’ space.
The trust has generated returns in excess of the Numis Smaller Companies + AIM (excluding investment companies) Index over the past one, three, five and ten years.
‘Consistently outperforming over the short, medium and long term is incredibly hard to achieve’, says Coatsworth, the investing platform’s head of markets.
Although UK smaller companies have been out of favour for a while, he says history suggests they have the ‘potential to deliver supersized returns’ once conditions improve. ‘There is no guarantee of success, yet the JPM trust has form in backing the right horses’, he adds.
The trust’s shares stand at a 9.2 per cent discount and the annual dividend income is an attractive 4.5 per cent with divis paid quarterly.
The last UK-invested trust pick is LOWLAND, which Interactive’s Kyle Caldwell says offers investors ‘a cheap entry ticket to tap into a market-beating dividend yield’ with a chunk of its assets in ‘domestically focused businesses’.
The £363 million trust, managed by Janus Henderson, offers an annual dividend yield of 4 per cent, which compares with 3.1 per cent from the FTSE100 Index.
Dividends are paid quarterly and the shares, priced at £1.68, stand at an 8.5 per cent discount. Returns over the past one and five years of 34.4 and 79.3 per cent are better than both the average for its UK equity income peer group and the FTSE All-Share Index. Annual fund charges are 0.71 per cent.
Emerging Markets
TEMPLETON EMERGING MARKETS INVESTMENT TRUST (TEMIT) is valued at £2.4 billion and invests in companies listed in some of the world’s fastest-growing economies: China, India and South Korea.
Launched 36 years ago, it paved the way for investing in emerging markets, resulting in a slew of rival funds. ‘It’s the grandaddy of emerging market investing,’ says Bestinvest’s Jason Hollands.
With its shares trading at a 7.9 per cent discount, Hollands believes TEMIT is a good option for investors wanting a small slice of their portfolio exposed to emerging markets.
‘Most emerging markets have had a cracking past year,’ he adds, ‘and things continue to look on the up.
‘The weakening of the US dollar under Donald Trump’s presidency has reduced the cost of paying interest on dollar borrowings taken out by both emerging market countries and companies. This, in turn, has acted as a financial stimulus for emerging markets.’
JPMORGAN EMERGING MARKETS GROWTH & INCOME is tech heavy with top-ten holdings in semi-conductor companies TSMC (Taiwan) and SK Hynix (South Korea)
AJ Bell’s Coatsworth says TEMIT has a ‘good record of outperforming’. It has beaten its benchmark index, MSCI Emerging Markets, over the past one, three, five and ten years. This, he adds, implies ‘stock picking skill and clever asset allocation’.
Total annual charges are 0.95 per cent and the fund’s annual dividend yield is two per cent.
Another emerging markets trust that would benefit from a continued weak dollar is JPMORGAN EMERGING MARKETS GROWTH & INCOME. Its shares trade at a 7.9 per cent discount. Although the trust’s investment record is inferior to that of TEMIT (comparative one-year returns are 33.5 and 57.4 per cent), Hargreaves’s Kate Marshall says it is run by ‘two seasoned and talented emerging markets managers in Austin Forey and John Citron’.
She adds: ‘They invest in high-quality companies with sustainable growth prospects.’
The trust is tech heavy with top-ten holdings in semi-conductor companies TSMC (Taiwan) and SK Hynix (South Korea). This may put off some investors. Annual charges total 0.79 per cent.
Investment Extremes
For investors looking for a bargain trust with an emphasis on preserving shareholders’ capital, some experts believe RIT CAPITAL PARTNERS is worth a look.
Its shares trade at a 24 per cent discount and, according to Bestinvest’s Jason Hollands, represent a ‘real bargain’.
Although the trust’s asset value has increased steadily over the past five years – rising by more than 35 per cent – its share price has grown by only 20 per cent.
This is primarily a result of its big exposure (32 per cent) to unlisted private market investments and the valuation it puts on these assets. The stock market believes the valuations are too high, hence the significant share price discount.
Yet Hollands believes the pessimism is overdone. He says: ‘It’s a multi-asset trust, invested across listed equities, privately owned businesses, and so-called uncorrelated investments such as absolute return funds.
‘In summary. It enables small investors to get exposure to some of the leading funds globally that are otherwise usually only available to the very wealthy.’
The Rothschild family is the trust’s largest shareholders.
At the other end of the investor risk spectrum is GEIGER COUNTER, a £77 million trust that invests in uranium exploration and its use in the production of energy.
Its biggest investment is in Canadian uranium mining company NexGen. Other key holdings include uranium miners Paladin Energy (Australian) and Ur-Energy (American).
Although generating one-year returns of 51 per cent, the trust’s shares currently trade at an 18 per cent discount.
Callum Stokeld, a research analyst at investment bank Panmure Liberum, describes Geiger Counter as a ‘fascinating [investment] proposition’.
He believes the world’s need for energy in the years ahead – in part to fuel the AI boom – will support strong growth in the use of nuclear power as a clean energy source. Geiger Counter, he says, ‘is well placed to benefit’.
Of the nine bargain trusts mentioned by our panel of experts, this carries the highest investment risk. At best, a periphery investment. Handle with care.
