Investment trust round up: Monks a little off the boil

14th June 2014

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Investment journalist Cherry Reynard reports on the week in investment trusts.

The investment industry lost one of its top smaller companies managers this week after it was announced that Unicorn’s John McClure had died. The manager of the Acorn Income fund and Unicorn Aim VCT had delivered impressive returns that had earned him much loyalty from his investors. McClure’s are difficult shoes to fill, but Simon Moon and Fraser Mackersie have worked on the funds since 2008 and will aim to continue his long-term track record.

Elsewhere results were thin on the ground: The London & St. Lawrence Investment Company, the top-performing, but under-the-radar trust, that invests in bonds, investment trusts and other securities, announced a rare quarter of weakness. In the three months to 31 May, the trust’s NAV has fallen 0.7%, compared to a fall of 0.3% for the FTSE All Share. However, investors clearly believe it will be short-lived as the trust remains on a 2.8% premium to net asset value.

Its top fund list reads like a great and good of the investment trust industry. If investment trust investors wanted some top tips, they could do worse that emulate the trust’s top holdings – Witan, Law Debenture, City of London and TR Property, for example.

The Monks Investment Trust saw a net asset value total return of 5.2% for the year to 30 April, a mildly disappointing result from the Baillie Gifford stalwart, representing underperformance of 1.6% on its benchmark. Steps taken by the group to improve performance, including appointing Tom Walsh as deputy manager to Gerard Smith, have yet to bear fruit. However, the group said there had been ‘encouraging signs of an improvement in trend’ in the very short-term.

Counter-intuitively, the balance of the trust has altered in 2014 away from emerging markets and towards the US. The group said this was a combination of finding good opportunities in the American market and increasing headwinds for companies operating in a number of emerging markets. However, Smith and Walsh still believe that there are greater longer-term growth opportunities in emerging markets. Financials remain a notable underweight, which contributed to underperformance last year.

Another Baillie Gifford trust, Edinburgh Worldwide, also had a tough strong six months. Its strategy of targeting companies with significant long term growth potential didn’t prove rewarding. The NAV decreased by 12.8%, against a drop of 3.1% by the company’s benchmark. Most of this weakness happened towards the end of the period, when the company’s high weighting in technology hurt performance. It has since recovered a little and the trust’s managers are sticking with the position.

The other fund of note to report this week was the £105m JP Morgan Japanese Smaller Companies fund. This had a strong year to 31 March, with an NAV return of 3.9%, against a fall in the company’s benchmark index of 4.1%.  However, the return to shareholders was not quite so impressive as the discount widened as part of a general disillusionment on the part of investors with Japanese equities.

Gearing on the trust remains in the middle of its range at 11.5%. Manager Shoichi Mizusawa believes that company fundamentals and valuations are still strong in Japan, and the impact of the consumption tax rise will be muted. At the very least, Japanese companies should be beneficiaries of improving global growth, led by the US. Mizusawa says there are signs of improvement in the domestic economy.

Featured trust – TEMIT

Mark Mobius is one of the few fund managers to attract the tag ‘guru’. The trouble is that with the tag has come significant assets and there are perennial concerns over whether he is running too much money and whether this has hampered performance. This fear has been compounded by a recent run of poor performance, which has led many to conclude that Mobius’s best days are over.

The Templeton Emerging Market Investment trust (TEMIT) delivered a relatively weak set of results for the year to 31 March, dropping 14.6% against a benchmark fall of 9.9%. Weightings in financial and energy stocks were the top detractors, as were overweight positions to highly indebted nations such as Thailand and Turkey.

However, it would be wrong to write off Mobius just yet. Energy is still a significant overweight position (Mobius is 10% ahead of the benchmark weighting) and there are signs of a recovery. India and China were contributors to overall performance.

Mobius is now 77 and showing no signs of slowing. He has recently gone on record saying that emerging markets have both low valuations and attractive fundamentals and he is more bullish now than he has been for some time, and frontier markets in particular.

Adviser pick

Rob Burdett, joint head of multi-manager at F&C Investments

“The Custodian Real Estate investment trust invests in small, lot-sized property of under £7.5m, below the radar of most property investors. It has been spun out of the Mattioli Woods private client business, where the property was held in client Sipp portfolios. It is property as it should be, getting clients wealthy slowly. It is a sensible way to take exposure to property at a time when commercial property is looking less attractive. It also has sensible gearing of around 15%, compared to 40% for many property trusts.”

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