The best investment trusts to buy for 2021
Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment trusts to buy for the year ahead.
Last year was another excellent one for investment trusts. JPMorgan notes that 2020 saw the largest-ever outperformance of the FTSE All-Share by investment companies. And this century the FTSE Equity Investment Instruments index has generated a total return of 300.2% versus 131.7% from the FTSE All-Share.
This is a reminder that exchange-traded funds and unit trusts have their place. But if you are looking for real active fund management and the opportunity to invest in more specialised strategies, there is still nothing better than listed closed-end funds.
Are there any bargains left?
So which ones look promising now? There are few raging bargains out there. I would suggest some property trusts. The first is Phoenix Spree Deutschland (LSE: PSDL), a specialist investor in Berlin residential property trading at a 30% discount to net asset value (NAV). The shares have underperformed owing to concerns about new rent controls by the local government and there has even been talk of expropriating increasingly expensive flats. But my sense is that 2021 could see a resolution of some of these challenges and the discount could narrow as the fund continues to refurbish its flats and sell them off.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The PRS REIT (LSE: PRSR) has had a difficult 2020 as many of its property developments aimed at the rental market have been delayed. It trades at a near 20% discount to NAV and yields just over 5%. Its rollout programme seems to be back on track and sentiment might well improve for this laggard.
On a slightly more tentative basis, I would also watch the student-accommodation subsector. I expect a much more vibrant market by the autumn, and on that basis both GCP Student Living (LSE: DIGS), on a 16.8% discount and currently yielding 3.4%, and Empiric Student Property (LSE: ESP), on a yawning 32% discount, are worth putting on your radar. Consider also Stenprop (LSE: STP), which focuses on specialist industrial properties. Unlike its peers in this field it still trades at a small discount.
The best emerging markets
Look overseas in 2021 too. Consider the Fundsmith Emerging Equities Trust (LSE: FEET) and the Mobius Investment Trust (LSE: MMIT). Both are trading at discounts and are not overly focused on the Greater China trading block, unlike many funds in this area. I also think India, in particular, will rally in the second half. Focus on the Ashoka India Equity Investment Trust (LSE: AIE) and the cheaper, more mid cap-focused India Capital Growth Fund (LSE: IGC).
Moving over to Southeast Asia, many of the specialist Vietnamese funds are worthy of attention. Vietnam has had a good pandemic and outfits such as the Vietnam Holdings Fund (LSE: VNH) and the VinaCapital Vietnam Opportunity Fund (LSE: VOF) are ideally positioned to benefit from a surging domestic market as well as a general rebound across Southeast Asia.
Investors cannot ignore China. My favoured route in is with the Fidelity China Special Situations fund (LSE: FCSS).
Go green
Sticking with competing geographies and markets, a new trend is US green growth, courtesy of the Biden administration’s focus on climate change. There are already two specialist funds in this sector: US Solar Fund (LSE: USF) and the recently listed Ecofin US Renewables Infrastructure Trust (LSE: RNEW). A few existing infrastructure funds are also investing heavily in the US, with the SDCL Energy Efficiency Income Trust (LSE: SEIT) in particular worth watching. This energy-efficiency and storage sector is growing fast. Expect more share placings from SEIT, Gore Street Energy Storage Fund (LSE: GSF) and Gresham House Energy Storage (LSE: GRID). As the US ramps up its wind turbines and solar panels, it will need to improve energy efficiency and spend a lot on batteries to store all the extra intermittent renewable power.
Where to find income
Interest rates look likely to remain at rock-bottom levels for the foreseeable future, forcing investors to embrace alternative sources of income. Consider investors in non-bank credit such as Honeycomb Investment Trust (LSE: HONY) and VPC Speciality Lending Investments (LSE: VSL). The former yields over 8%, the latter closer to 10%. Both funds have been very proactive in managing their risk profile and should benefit from the economic rebound later this year.
Sticking with the income theme, more adventurous investors should research Biopharma Credit Investments (LSE: BPCR), which lends to the pharmaceutical sector. It has an excellent record and a 7% yield. The shares trade around par.
An overlooked gem
A fund most investors have probably overlooked is the Schiehallion Fund (LSE: MNTN). This private-equity fund trades on the specialist-funds market but can be bought through retail brokers. It is managed by the Baillie Gifford team and was launched with very little fanfare in March 2019, raising $477m (£361m) from a small group of institutional shareholders who are not typical holders of UK trusts, notably big pension funds such as the State Board of Administration of Florida.
According to analysts at Numis, the focus is on “companies with transformational growth potential that have scalable business models, with robust competitive advantages and a strong management team”. It already trades at a decent premium, but investments include Stripe, a payment processing and software outfit, mobile-games publisher Scopely and rocket maker SpaceX.
Finally, look out for a flotation of Graphcore, the multibillion-pound British unicorn building intelligence- processing units for specialist artificial intelligence analyses.
This could be a huge success and if it does capture investors’ enthusiasm, then the likes of venture-capital fund Draper Esprit (LSE: GROW), Chrysalis Investments (LSE: CHRY) and the Schroder British Opportunities Trust (LSE: SBO) will benefit hugely as they have invested heavily in this Bristol-based business.
David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
-
Should you sell in May this year?
The market adage looks unlikely to apply in 2024, and global equities are proving resilient
By Max King Published
-
Should you invest in UK equities?
The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
By Katie Williams Published
-
AstraZeneca CEO’s £1.8mn pay rise approved despite shareholder opposition
AstraZeneca hiked its dividend to persuade shareholders to accept CEO Pascal Soriot’s pay rise. Is he worth his salary?
By Dr Matthew Partridge Published
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
By Chris Carter Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published