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 our cover story. 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.
We’ve got plenty of suggestions on trusts to buy throughout this issue. Merryn updates our model investment trust portfolio. We try to keep this process as boring as possible (on the basis that we don’t like to trade much), but in this instance, Merryn has a new “buy” for you – we’re swapping Finsbury Growth and Income for a value-focused alternative. Meanwhile, we’ve asked three City experts to pick their own favourite trusts – I’m particularly intrigued by the small cap suggestions of Alastair Lang of Capital Gearing Trust. Of course, we don’t like every investment trust – Max King looks at three high-profile ones to avoid, and suggests alternatives.
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 record in the sector – we’ll let you know more about it closer to listing.