Investment trust tips: JPMorgan Asian replaces Schroder Asia Pacific

In our update for the third quarter of 2019, we explain the change to our adventurous trust tips line-up.

With the FTSE All-Share index and the MSCI Europe index both advancing by less than 2% over the quarter to end September, and smaller companies in both regions even more depressed, it was hard for our tips in the sectors concerned to make much progress.

It was therefore reassuring to see quality focused Troy Income and Growth Trust (TIGT) achieving the best share price total returns of any mainstream UK trust, with a 5.3% rise, and a pleasant surprise that Temple Bar (TMPL) was also in positive territory. Manager Alastair Mundy is committed to a value-oriented approach, which has been a strong headwind in recent years. But Mundy argues the valuation differential between value and growth-type stocks is now even more extreme than it was in 1999 and cannot persist indefinitely.

Our decision to start including a North American sector has paid off over the quarter, with both our adventurous and conservative US tips contributing positively to their respective portfolios.

Conservative investment trust portfolio
Adventurous investment trust portfolio

Japan trust anxiety

Japan’s Topix index did even better with a 6.5% gain, but disappointingly neither of our selections matched it. Given its very weak performance over the past year, we are anxious about long-time star holding Baillie Gifford Shin Nippon (BGS). We will reserve judgement for now on whether recent travails are a temporary blip or more concerning, although the loss of form has coincided with last year’s departure of its long-time head, Sarah Whitley. That being said, it could be the case that its focus on disruptive growth companies is starting to turn sour, as indicated by negative net asset value (NAV) total returns over the quarter from BG’s large global trusts, Scottish Mortgage and Monks (MNKS).

Edinburgh Dragon (EFM), which is our conservative choice for the Asia Pacific region, held up fractionally better than its benchmark in terms of NAV total returns, and remains top performer in its sector over one year. In contrast, Schroder Asia Pacific (SDP) was bottom of its sector over the quarter, leaving its one-year NAV total returns as tail-end Charlie, and even its three-year NAV total returns looking lacklustre. Its highly rated and more defensively managed sister trust, Schroder Asian Total Return, has also been off the boil, which has led us to switch to another management house, and as this is an adventurous selection we are opting for JPMorgan Asian (JAI), which has outperformed its benchmark in each of the last four years.

Drawing on advice from JPMorgan’s substantially expanded research capability in China, JAI managers Ayaz Ebrahim and Robert Lloyd have around 40% of the portfolio in China, with 16% in South Korea, and around 13% in Hong Kong. JAI has been ungeared since early 2017 . It offers an enhanced yield of 4.3%, paid quarterly. It also has the lowest ongoing costs in its sector, and trades on a discount close to the 10% which its board seeks to defend.

Allianz Technology Trust (ATT) has suffered a couple of difficult months, with overweight exposures to Zscaler, Square, Cree, Bloom Energy and DXC Technology detracting from performance. This is disappointing, but manager Walter Price’s preference for higher growth mid-cap stocks means ATT is liable to suffer periods of above-average volatility. However, in the five years the trust has been our adventurous specialist choice it has handsomely rewarded those who have kept their nerve.

How our investment trust tips have performed

Conservative choices

  Total return (income
reinvested) (%) after:
       
  3 mths 6 mths 1 yr 3 yrs 1 Aug 2014†
Conservative choices          
Troy Income and Growth Trust 5.3 8.7 11.7 21.4 57.4
Standard Life Private Equity 4.8 1.6 5.7 47.6 98.5
JPMorgan American 4.7 11.4 3.3 49.4 107.6
Capital Gearing 2.8 5.9 7.2 21.4 45.2
Bankers 1.9 9.5 8.2 53.8 93.4
BlackRock Throgmorton 1.2 13.2 6.1 80.9 129.9
JPMorgan Japanese 0.2 10.8 -2.5 36.4 112.5
Fidelity European Values -0.6 12.2 9.3 49.4 91.2
Utilico Emerging Markets -0.9 11.4 26.0 27.5 55.7
Edinburgh Dragon -1.0 5.2 12.3 37.6 61.2
Conservative portfolio 1.7 8.2 8.9 39.3 74.2

 

Adventurous choices

  Total return (income
reinvested) (%) after:
       
  3 mths 6 mths 1 yr 3 yrs 1 Aug 2014†
Adventurous choices          
JPMorgan US Smaller Cos 3.5 9.6 -3.9 56.1 136.2
Princess Private Equity 1.5 6.5 -2.8    
Temple Bar 0.3 -1.9 3.7 26.4 25.9
Baillie Gifford Shin Nippon -0.1 1.7 -11.4 57.6 181.3
JPMorgan Emerging Markets -1.4 7.9 17.8 46.9 88.9
Monks -1.6 7.8 7.8 74.2 144.7
Standard Life UK Smaller Cos -1.6 7.9 -5.3 37.7 96.4
Allianz Technology -3.5 3.8 1.8 110.3 220.8
Montanaro European Smaller Cos -4.0 15.7 6.9 69.1 125.5
Schroder AsiaPacific* -4.8 -2.3 3.6 33.4 81.7
Adventurous portfolio -1.1 4.2 0.8 44.7 94.1

Notes: Constituents ranked by three-month performance. Not all constituents were members of the portfolios over the time periods stated. * Replaced in this review by JPMorgan Asian. † Portfolio inception date. Data source: FE Analytics as at 1 October 2019.

 

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