Our expert panellists’ choices are a mixed bag, ranging from punchy options for bold investors to steady income fund ideas for the more defensively minded.
Single country tips
Janus Henderson China Opportunities
TR 1 year -10.5%, 3 years 50.6%, yield 1.2%
China’s stock market was hit hard in 2018 due to the trade war and strong US dollar. On the one hand, some experts are wary of the region amid concerns that its overheated property market will led to a full-blown crisis. Others, including Liontrust’s John Husselbee, points out that for years there has been talk of a hard landing in China, but as yet it has failed to materialise. To play the region this is his preferred fund; it has been managed by Charlie Awdry since 2006. Husselbee adds: “President Trump has targeted much of his trade rhetoric upon China, and this has dampened the sentiment perhaps more than the fundamentals.” (2019 Money Observer Rated Fund)
Fund factsheet: Janus Henderson China Opportunities
Matthew China Smaller Companies
TR 1 year -4.2%, 3 years 51.9%, yield 0%
A racier way to play a China market recovery in 2019 is to back a fund that specialises in smaller companies, argues Shore Financial Planning’s Ben Yearsley. The portfolio manager, Tiff any Hsiao, believes that small-cap businesses in China are at the forefront of the country’s economic shift away from manufacturing to consumption. Yearsley adds: “For brave investors this creates a long-term buying opportunity. This fund is high-risk and it will be volatile, but in 10 years’ time it should be worth a multiple of what it is now.”
Stewart Investors Indian Subcontinent
TR 1 year 6.7%, 3 years 52.8%, yield 0.1%
The attractions of India are well-documented: it has a young population with an average age of 26, which means lots of potential taxpayers and spenders. In addition, it has a reformist prime minister who is business-friendly. But on the other hand, India’s stock market is notoriously volatile. This fund reduces that risk, points out Jason Broomer of Square Mile, as it focuses on high-quality companies. He adds: “This is a strategy that tries to address some of the varied risks that investors face in this part of the world, through a process that is disciplined, thoughtful and focused on the long term.” (2019 Money Observer Rated Fund)
Fund factsheet: Stewart Investors Indian Subcontinent
JPMorgan Russian Securities IT
SPTR 1 year 8.6%, 3 years 81.6%, discount -17.5%, yield 5.1%
Russian equities look cheap heading into 2019, but a word of warning: in previous years they have also looked cheap as chips and this has not translated into strong returns. In short, Russia is home to some of the world’s largest energy companies, so its overall stockmarket performance is heavily reliant on the movements of the oil price. John Newlands says this trust is his contrarian choice, as Oleg Biryulyov is an expert manager. He has run the fund since 2002. “The wide discount (17%) offers a useful element of downside protection,” adds Newlands.
Fund factsheet: JPMorgan Russian Securities IT
First State Global Listed Infrastructure
TR 1 year 2.4%, 3 years 51.4%, yield 3.3%
Infrastructure has monopoly-like qualities that provide stability through an economic cycle. Therefore, it is perhaps no surprise that in potentially the latter stages of a bull market our experts have selected three infrastructure specialists. Broomer picks this fund out, noting that the investment team keeps a close eye on preserving capital. He adds: “This focus and the natural defensiveness of this asset class mean this is a strategy that could potentially weather any market turbulence well.”
The Renewables Infrastructure Group IT
SPTR 1 year 15.5%, 3 years 37.7%, premium 6.5%, yield 5.7%
This trust invests for a high and consistent income stream in wind, solar and battery storage projects. Most of its portfolio is in the UK, with 44% in Scotland, and over 70% in onshore wind. Tim Cockerill of Rowan Dartington likes it because managers InfraRed Capital Partners are very experienced, and the income is partially inflation-linked. “It works well as a diversifier in a portfolio, with the majority of the return coming from income,” he says. The premium stands at 6.5%, but this is lower than most other infrastructure-focused trusts. (2019 Money Observer Rated Fund)
Fund factsheet: The Renewables Infrastructure Group IT
Polar Global Insurance
TR 1 year 7.5%, 3 years 53.9%, yield 0%
This fund was tipped last year and has once again been backed for 2019. As the name suggests, it specialises in the insurance industry worldwide, with the big draw being the sector’s low correlation with equities. Yearsley adds: “The insurance cycle moves very differently from the economic cycle. It won’t shoot the lights out, but it provides an interesting and differentiated ballast.”
Other specialist plays
BlackRock Gold and General
TR 1 year -15.6%, 3 years 47.4%, yield 0%
There are certain investments that over the years have proved their value in protecting portfolios from volatile markets. Gold is viewed as the ultimate safe haven, and typically forms a small part of a more conservatively positioned multi-asset portfolio. This fund, managed by Evy Hambro and investing in shares of companies mining gold and precious metals, is deemed the standout choice. Husselbee adds: “This fund is not exactly an investment in the ups and downs of the gold price, but it has provided diversification from stockmarkets in the past.”
Fund factsheet: BlackRock Gold and General
3i Group IT
SPTR 1 year -5%, 3 years 83.7%, premium 7.4%, yield 4.4%
This trust invests predominantly in management buyouts in Europe and the UK. Charles Murphy of Panmure Gordon says it is a well-managed, lower-cost, private equity trust that has performed strongly over the past five years. “It is not dependent on asset sales to function, its balance sheet is conservatively positioned, and running costs are covered by sustainable income streams, yet it has recently fallen to a premium of more than 10%. We expect it to re-rate as investors focus on the portfolio’s potential,” he says. The premium of 11% is high though, so it would be prudent for investors to time their entry carefully.
Fund factsheet: 3i Group
BH Macro IT
SPTR 1 year 18.6%, 3 years 16.5%, discount -1.8%, yield 0%
Our second specialist trust invests exclusively in Brevan Howard Master Fund, a hedge fund focused on currencies and fixed interest. It has been managed since launch by the eponymous Alan Howard. BMO’s Peter Hewitt likes it because the widespread phasing out of quantitative easing is resulting in greater volatility in interest rates and foreign exchange, which gives it far more investment opportunities. It has also trimmed its fees and brought in discount controls.
Menhaden Capital IT
SPTR 1 year -4.1%, 3 years -28.8%, discount -29.8%, yield 0%
Menhaden Capital was launched in 2015 to invest in businesses delivering or benefiting from the efficient use of energy and resources. John Newlands believes it has not yet reached anything like its full potential. He says: “The trust has thus far failed to generate asset growth and has fallen completely out of favour. Yet it has a committed and high-calibre management team and board that will eventually produce results and make the present discount rating look silly.”
TR Property IT
SPTR 1 year 4.5%, 3 years 41.5%, discount -2.4%, yield 3.3%
Following the open-ended property fund debacle that took place in the wake of the Brexit vote, our experts on the whole advocate going down the investment trust route when it comes to property. In short, in times of stress, open-ended property funds have a liquidity mismatch in that they cannot sell properties quickly enough to meet investor withdrawals. They therefore have to hold a lot of cash against this eventuality. The closed-ended investment trust structure does not have this problem. Sandy Cross of Rossie House picks this trust, which holds mainly property shares, as his preferred choice: “The manager is highly regarded; the trust is a good option for those wishing to hold property.” (2019 Money Observer Rated Fund)
Fund factsheet: TR Property IT
Secure Income REIT
SPTR 1 year 8.9%, 3 years 54.5%, premium 1.2%, yield 4.1%
This trust specialises in generating long-term, inflation-protected income from real estate investments. It owns 177 properties, based predominantly in England. Most are let to private hospitals, theme park operators or Travelodge hotels, with average lease lengths of 23 years and no tenant break clauses. Hewitt says: “Rents are mostly inflation-linked or with upward-only reviews. The name Secure Income says it all.”
Fund factsheet: Secure Income REIT
SPTR 1 year -0.6%, 3 years n/a%, premium 3.9%, yield 5.1%
The second Reit tipped by our panellists constructs and then rents out new-build homes for families with average incomes (c£30,000- £35,000 a year). Most of the existing portfolio is in North West England, but declining land prices are creating opportunities in the South. Charles Murphy says: “The fund has committed to 5,100 new homes, of which 595 have been completed. PRS currently pays a 5% dividend yield and the dividend is expected to rise steadily on the back of rental value growth.”
Fund factsheet: PRS REIT
Note: fund tips are shown in green and investment trust tips in blue. (SP)TR = (share price) total return. All performance data as at 1 December 2018.
Read about Money Observer Rated Funds here.
Our fund and trust tips panels
Our fund experts:
Kelly Prior is an investment manager in BMO Global Asset Management’s multimanager team. She joined the group from Thames River Capital in 2007.
Brian Dennehy is managing director at advisory firm Dennehy Weller. He also runs FundExpert, which provides research and insights for self-directed investors.
Mick Gilligan joined Killik & Co in 2001 and became a partner in 2004. He was previously an investment specialist at a private client advisory business.
Jason Broomer has more than two decades’ experience in fund research. He runs Square Mile’s portfolio service.
John Husselbee is head of the Liontrust multi-asset team. He has more than 25 years’ experience in managing multi-asset portfolios.
Ben Yearsley is a director at Shore Financial Planning. He was formerly head of investment research at Charles Stanley Direct.
Our trust experts:
Tim Cockerill is investment director at wealth manager Rowan Dartington, which is part of St James’s Place. It is responsible for client assets in excess of £1.5 billion.
Sandy Cross is a partner at Rossie House Investment Management, which has long favoured investment trusts for private client portfolios. He joined RHIM in 2012.
John Newlands worked for nearly a decade as head of investment companies research at Brewin Dolphin. He is founder of Newlands Fund Research.
Peter Hewitt has managed the BMO (formerly F&C) Managed Portfolio trusts since 2008. He joined F&C in 1999.
Charles Murphy is head of listed investment companies analysis at Panmure Gordon, which he joined in November 2012.
More expert tips:
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now