Three top investment trusts
Recent months have seen some of the toughest times for equities. Yet there are still deals to be had in investment trusts, says professional investor Peter Walls. Here, he tips three such trusts to buy now.
Each week, a professional ionvestor tells MoneyWeek where he'd put his money now. This week:Peter Walls, portfolio manager, Unicorn Asset Management.
When an old hand such as Fidelity's Anthony Bolton says the last few weeks of September 2011 were as difficult a time to be running money as he can remember, you know that times have been tough for equity investors. And with the eurozone crisis rumbling on, it takes a leap of faith to adopt Warren Buffett's mantra to be greedy when others are fearful. Even so, I think there are a number of interesting opportunities in the investment trust sector at present, which not only offer recovery potential but can also be bought at attractive discounts to net asset value (NAV).
Investment trusts that specialise in UK smaller companies generally trade at relatively wide discounts at the best of times. So it is no great surprise that ratings have deteriorated amid the recent uncertainty. Trading on an 18% discount to NAV, the Throgmorton Trust (LSE: THRG) is available at a price that almost implies that something is seriously amiss. But nothing could be further from the truth.
Performance since the appointment of the new management team in July 2008 has been second to none. The trust trades within a highly competitive peer group, in which the majority of trusts have consistently beaten the FTSE Smaller Companies Index. In the three-year period ending 9 December 2011, Throgmorton's NAV appreciated by more than 140%, compared to a rise of 47% in the FTSE All Share index. As such it would make an ideal choice for a toddler's Jisa (junior individual savings account).
Investors in BlackRock New Energy (LSE: BRNE) have had a roller-coaster ride since the trust was launched around ten years ago, with big moves in the NAV accentuated by dramatic swings in the discount. Having at times traded at a premium to NAV, the shares now sit at a discount of 20%. At that level, they appeal to my contrarian tendencies. Just as many technology funds were investing in young businesses in the technology boom of the late 1990s, BRNE started off its life with investments in early-stage companies.
The technology funds that survived the bust are now largely invested in profitable companies and this is true for BRNE too. The portfolio now features multi-billion-pound companies such as Johnson Controls and Johnson Matthey. The incredible expansion of the emerging-market middle class will undoubtedly force energy prices higher over time, increasing the economic viability of the alternative technologies represented in BRNE's portfolio.
Staying with the technology theme, I continue to favour Herald Investment Trust (LSE: HRI), where the discount has drifted back out to more than 20%. If, like me, you believe that smaller technology companies can deliver superior long-term returns, then this is a trust worth considering.
The combination of investing in relatively immature businesses operating in fast-changing, cutting-edge markets is not without considerable risk. This probably explains why Herald's underlying portfolio is so diversified in terms of the number of underlying investments. However, the 463% rise in the trusts's NAV (versus the FTSE All Share's 65% rise) since launch in 1994 suggests that the current management team have got their strategy about right.