Investment trusts: the perfect vehicle for contrarians

published 2 February 2017

This week, it's all about investment trusts. If you're a regular reader, you'll know that we've always liked investment trusts. We explain exactly why in this week's issue. But to sum it up, we've always been a contrarian bunch at MoneyWeek, and if you were to design the perfect vehicle for a contrarian investor to use, it would look a lot like an investment trust.

Contrarians have to be patient, and can't be afraid to invest in unpopular areas investment trusts give the manager a permanent pool of capital to invest, which means they can make high-conviction bets without having to worry about jittery investors pulling out at short notice. Contrarians also like to get a bargain, and investment trusts often give you the chance to buy £1-worth of assets for a lot less than £1 particularly if sentiment has soured on a sector.

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As for contrarian bets for this year if you feel as optimistic about Brexit as we do (in other words, you aren't entirely convinced that it's the end of civilisation as we know it), then you should take a look at UK small-cap trusts. Iain Scouller at Stifel Funds notes that the sector started 2016 on an average 8% discount, and ended it on 16% (in other words, you can now get £1-worth of assets for just 84p). He suggests BlackRock Throgmorton (LSE: THRG) which is currently on a 16% discount, even although it has outperformed the FTSE Small Cap index over the past six months as one good way to play the theme.

Finally, here's an interesting one for you. One of the most successful investment trusts last year was oil and gas specialist investor Riverstone Energy (LSE: RSE), a trust we've recommended on several occasions here. If you're interested in the energy sector, then keep an eye out for the Guinness Oil & Gas Exploration Trust which looks set to list in the London market by the end of February. The trust plans to invest in cheap junior oil and gas stocks "at extremely depressed valuations" and will take an activist approach. It does charge a performance fee (which we're never keen on), but Guinness has a good track record in the sector we'll let you know more about it closer to listing.

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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.