Press centre
16 February 2010
Investment company ISA recommendations
AIC collates IFA recommendations for the ISA season
With the end of tax year approaching, the Association of Investment Companies (AIC) has collated the views of leading advisers to gauge their investment company ISA recommendations from both a cautious and adventurous perspective. Covering a broad spectrum of sectors, they give a good indication of some of the diversity in the sector, as well as alluding to some possible discount opportunities in the sector.
Cautious recommendations include: Perpetual Income and Growth Investment Trust (UK Growth & Income), Witan Investment Trust (Global Growth), and whilst perhaps not traditionally perceived as one of the more cautious sectors for private investors, BH Global (Hedge Funds) – due to its low correlation with equities. More adventurous recommendations include BlackRock World Mining, JPMorgan Russian Securities and Aberdeen Asian Smaller Companies.
Cautious recommendations
Tim Cockerill, Head of Funds Research, Ashcourt Rowan, likes Perpetual Income & Growth Investment Trust, particularly in the context of the current economic environment. He said: “The UK equity team at Invesco Perpetual is well known for their bearish stance and this is reflected in this trust. Too much debt in the economic system means that long term growth will be compromised and therefore companies with high quality and predictable earnings will win out in the end. As such pharmaceuticals, food staple and utilities are likely to fair well and the trust is skewed to these types of stock. The expectation is that a weak recovery will result in investors focusing on this type of company, and although they have been out of favour with the market recently, this will change. Mark Barnett the manager says “there is no need for heroics in these markets”. Consequently this fund provides a high quality portfolio with a yield of 4%. It is on a small discount of 5%, which is consistent with its long term average. It is geared, but with a low risk portfolio and strong dividend flow this is not a concern.”
Roddy Kohn, Principle, Kohn Cougar, returns to an “old favourite” for his cautious recommendation – Witan Investment Trust. He said: “Well it has to be that old favourite Witan. Ideal for the cautious investor because it invests globally, generally remains largely invested in the stock market so investors don’t have to think about market timing or volatility, knowing that’s what the fund managers will do. The trust uses a multi manager approach to investing, therefore not only is it diversified at a sector and geographical level but also at manager level. In addition the trust offers an attractive dividend for income seekers and at the time of writing is attractive because it can be bought at a 10.5% discount.”
Taking a perhaps more contrarian approach, John Davey, Research Analyst, Bestinvest likes BH Global, which he expects to do well in volatile markets. John Davey said: “The company invests all of its assets in the Brevan Howard Global Opportunities Master Fund, which in turn invests exclusively in funds managed by Brevan Howard. Unlike a fund of hedge funds, this company is invested in a single hedge fund and will not carry a second layer of management fees. Redemptions from the underlying funds will be subject to usual lock-ups, however redemption fees may not be payable. The fund invests in a wide range of strategies, asset classes and regions with capital being employed across 65 plus traders who operate within strictly defined mandates. The underlying portfolio may consist of up to 1,000 individual positions and Brevan Howard employ an in-house risk management system to capture aggregate risks across all the underlying trading positions, and undertake scenario modelling to test the portfolio exposures against extreme historical events.
“The company’s strategy has tended to do well in trending markets, periods of increasing volatility or steepening yield curves. Exposure to equities and credit is small, so correlation with these asset classes tends to be low.”
Adventurous recommendations
Simon Moore, Research Analyst at Bestinvest, picks out BlackRock World Mining as both a potential discount opportunity and a play on the growing Chinese economy: “The recovery in commodity prices continues to be supported by demand from China, where current economic data and GDP growth forecasts are impressive. Demand from the rest of the world is also beginning to improve. The portfolio of BlackRock World Mining is dominated by mining shares and major themes in the portfolio are Gold, Platinum, Copper and Iron Ore.
“The manager Evy Hambro has an excellent track record - our analysis shows that over his 15 years of managing money in this sector he has on average beaten the HSBC Global Mining index by 0.78% per month and we score him 99.9% (using our Manager Record Index analytics).
“This is a large trust with total assets over £1bn and its current discount of 19% is nearly at the widest point for 12 months. We rate BlackRock World mining with 4 stars meaning it is our preferred fund to play the mining and resources sector.”
Keeping the Faith
Despite its extremely strong past performance, Tim Cockerill thinks the Russian growth story may well have some more mileage for the adventurous investor: He recommends JP Morgan Russian Securities.
Commenting on JPMorgan Russian Securities, Tim Cockerill said: “Although this trust has bounced significantly from its lows in March 2009 Russia has been the laggard of the emerging markets. There are of course good reasons for this but Russia may just surprise. It is a resource rich country and whilst demand globally for resources may be subdued at this moment this situation isn’t going to last.
“The valuation of stocks is attractive with an average PE of 8x, very cheap by relative standards (the average in China is 50x). The currency has stabilised and as the global economic recovery gains ground the Russian economy will benefit. The trust has some big positions, the largest is Sberbank at 13%, but it isn’t geared and presently trades on a 10% discount, which is close to the long run average. Ever present within Russia is the political risk and this can always surprise but it doesn’t have to be negative. This is an adventurous trust and not without considerable risk, but the returns could be very strong long term.”
Roddy Kohn favours Asia for his higher risk option, recommending Aberdeen Asian Smaller Companies: “This trust is managed by an old hand within the industry, Hugh Young and he is a firm and trusted favourite of the expert adviser community. Sitting on a reasonably attractive discount of 13%, Aberdeen Asian Smaller Companies offers those investors who view the east as the growth powerhouse of the future an ideal trust. The trust performed excellently over the last year and whilst returns over the forthcoming year may experience heightened volatility, the economic growth in the east should prove fruitful over the long-term for astute stock pickers like the team at Aberdeen. As such the trust makes for an ideal holding for the adventurous investor.”
AIC View
Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “These recommendations illustrate some of the diversity in the investment company sector, and with a number of advisers commenting on discount opportunities, there is clearly some value to be had too for those willing to do their research or seek advice. Indeed whilst discounts have widened recently, performance has been strong for the investment company sector over the last year.
“With the outlook for the world economy still far from clear, the closed ended structure of investment companies can be particularly useful as it means managers can take a long-term view without the worry of having to sell good stock to meet redemptions. With the added flexibility of being able to ‘gear up’, or borrow, to take advantage of buying opportunities, combined with an independent Board to oversee shareholder interests, investment companies can provide a real boost to an investor’s portfolio. With charges on average tending to be competitive, it’s worth considering investment companies as part of your ISA portfolio.”Download the AIC ISA factsheet.
- Ends -
Notes to Editors
The Association of Investment Companies was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help Members add value for shareholders over the longer term. The AIC has 345 members and the industry has total assets of approximately £83 billion.
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