FIVE EXAMPLES OF INVESTMENT TRUSTS CREATING VALUE IN DIFFERENT WAYS
SCOTTISH INVESTMENT TRUST (SCIN)
This value-driven trust has delivered 9.4% annualised total returns over the past decade through a strategy of investing in international equities and trying to achieve dividend growth ahead of UK inflation.
Research group Kepler says the portfolio was revamped in 2016, moving the investment strategy to a higher conviction approach with fewer holdings and 2018 saw the introduction of quarterly dividend payments.
The portfolio contains a mixture of well-known UK stocks include Tesco (TSCO) and BHP Billiton (BLT), as well as some familiar brands listed overseas including Gap, Exxon Mobil and Pepsico. You’ll also find some non-household names such as Japan’s Sumitomo Mitsui Financial and National Oilwell Varco, a US energy firm.
TEMPLE BAR INVESTMENT TRUST (TMPL)
Temple Bar looks for out-of-favour stocks trading on cheap valuations. It looks at price relative to the operating profit it thinks the company can ultimately make when it has recovered.
It also demands a decent balance sheet from a company it is considering adding to its portfolio. That doesn’t necessarily mean a pristine one, but rather a decent enough one to let the management work under the conditions they are being given. It doesn’t want company bosses worrying that the balance sheet will implode in the next few months.
The majority of its portfolio is FTSE 100 stocks and some mid-caps. It doesn’t necessarily look for high income yields on day one. But it wants to make sure the shares are very cheap for compensation that it isn’t receiving a dividend yield on all of its stocks.
AURORA INVESTMENT TRUST (ARR)
Patience is a key virtue with Aurora which says its research process often takes years. It undertakes highly detailed studies of companies in order to gain utmost confidence before considering an investment. This means it is very picky and in turn this results in a very concentrated portfolio of typically 12 to 20 stocks.
The trust – run by Phoenix Asset Management – says it buys great businesses when they are cheap, usually because they are having short term issues. ‘If our research is correct, then they emerge Phoenix-like and deliver high returns,’ adds the asset manager.
Aurora’s portfolio includes stakes in Sports Direct (SPD), WM Morrison Supermarkets (MRW)
and airline EasyJet (EZJ).
FIDELITY SPECIAL VALUES (FSV)
Perhaps one of the better-known value-style investment trusts, this Fidelity product has a stellar track record, beating its benchmark index on a three, five and 10 year annualised basis by a considerable margin.
Its portfolio contains a large number of FTSE 100 companies but it does also have mid-cap exposure. Holdings include CRH (CRH),
Ultra Electronics (ULE) and Aviva (AV.).
It aims to achieve long term capital growth by investing in stocks whose growth potential isn’t yet appreciated by the broader market. Fidelity says the trust ‘thrives on volatility and uncertainty’. The portfolio typically contains 80 to 120 stocks.
CRYSTAL AMBER FUND (CRS:AIM)
This is an activist investor fund targeting mainly small and mid-cap UK equities. It likes to shake up companies and extract hidden value.
Previous targets (and past fund holdings) include Aer Lingus, Pinewood and Kentz. The current portfolio includes Hurricane Energy (HUR:AIM), Ocado (OCDO) and Johnston Press (JPR).
One issue to consider is that Crystal Amber’s shares are currently trading on a 5.6% premium to net asset value. That’s likely to be a result of investors being encouraged by good past performance including 2017 where its successful campaigns boosted its value by 33% year-on-year.
In March this year, the investment trust said its net asset value fell by 6.7% over a six month period – illustrating how performance can be volatile with activist funds as you are often waiting a long time for change to be achieved in a business. Investors buy this fund for the potential rich rewards and accept that the risks are high as not all activist scenarios play out as expected.
Aurora’s detail research has included the recruitment of mystery shoppers for Morrisons and monitoring cricket bat prices for its work on Sports Direct