Investment trust picks
The huge share price discounts on investment trusts finally started to narrow as markets rallied hard in the final months of 2023. Discounts are still commonplace, however, leaving analysts plenty of choice when it comes to identifying their 2024 picks.
Those trying to identify specific subsectors with good prospects have backed some of the same options.
When it comes to domestic equity exposure, contrarian manager Alex Wright’s Fidelity Special Values (FSV) continues to get plaudits, with analysts at Peel Hunt, Numis and Winterflood all pointing to the fund as a possible winner. “Fidelity Special Values remains our top pick in the UK space owing to its contrarian approach, with a record of outperforming in a variety of market conditions,” Peel Hunt’s team noted.
They also highlighted Aberforth Smaller Companies (ASL), another value fund that hunts lower down the market cap spectrum. “The underlying PE of ASL’s portfolio is around 6.9, which is a near-record low, and historical evidence suggests that it should support a future five-year annualised return of more than 20 per cent,” the analysts said. The second pick from the Numis team has more of a growth bias, in the form of Henderson Smaller Companies (HSL).
Emerging market equities have also been under the weather, thanks in part to woes in the Chinese equity space, with the MSCI Emerging Markets index up just 12 per cent over five years in sterling total return terms versus an 84 per cent return from the S&P 500.
That’s something that has prompted analysts to look for niches rather than generalist portfolios, with Numis focusing on “beneficiaries of diversification away from China” including JPMorgan Indian (JII) and Vietnam Opportunity (VOF), which should continue to enjoy their own structural growth stories. Peel Hunt pointed to the likes of Ashoka India Equity (AIE) and Mobius (MMIT).
Some analysts meanwhile have opted for some of the more established global equity funds – including beleagured growth play Scottish Mortgage (SMT). Winterflood’s team, which identified picks across the whole trust universe, made a U-turn on the tech-focused trust. “After removing Scottish Mortgage in favour of its stablemate Monks (MNKS) at the beginning of last year, we have now decided to switch back to Scottish Mortgage given the value on offer from the current discount,” they said
“We think that there is scope for a notable re-rating and significant pick-up in performance in a more stable interest rate environment, especially if sentiment towards private markets improves.”
Alternative trust picks
Alternative asset classes have taken a big hit in the past year but should fare better if interest rates have peaked and bond yields start to drift down, as this week’s funds feature discusses. Once again investors still have their pick of apparent bargains.
Within the infrastructure space, Peel Hunt’s team likes Pantheon Infrastructure (PINT), noting that it has exposure to assets across different sectors and geographies but also stands out for making co-investments alongside other institutions – something that can prove highly cost-efficient.
PINT has notable digital exposure, with 43 per cent of the portfolio in towers, data centres and fibre assets. Stifel analysts have meanwhile opted for 3i Infrastructure (3IN), noting that it has a strong long-term track record including sales made at good prices, undated revenue streams, a dividend covered by net cash earnings and, like many trusts in the sector, a share price discount for the time being.
In a time of ‘peak’ rates and calmer markets, it’s perhaps unsurprising to see funds with unlisted assets getting some attention too. Scottish Mortgage might be one, but analysts have also pointed to trusts such as NB Private Equity (NBPE), HarbourVest Global Private Equity (HVPE), and Seraphim Space (SSIT). The lesson of the past two years is that trusts that are optically cheap can stay that way for some time. Kepler’s William Heathcoat-Amory is one of those to back NB Private Equity in 2024, arguing it is “in a strong position to weather a deal slowdown because of the deal-by-deal way in which it deploys capital”.
Funds that operate a private equity approach or back early-stage companies could face challenges due to a higher cost of debt but many such trusts continue to trade on enormous share price discounts, offering some margin of safety. More niche plays might also look interesting in the alternatives space, including Stifel picks Foresight Sustainable Forestry (FSF) and Taylor Maritime Investments (TMI).
As ever, investors should regard bargains – and in particular special situations – with some degree of caution.
