Finding exceptional investment trusts without the price tag
“Covid-19 has created a once-in-decade opportunity to pick-up exceptional investment trusts at...
Russia is the largest country in world by area and the ninth most populous. It is touched by 12 seas, spans 11 times zones and extends across all of Northern Asia and most of Eastern Europe.
As a big producer of oil and gas, around half the MSCI Russia index is made up of companies in the sector. As such, it is very sensitive to the price of energy and has benefited from the rise in the past couple of years. This boost, along with falling interest rates, a tighter labour market, improving industrial production, increasing mortgage transactions and consumers generally spending more, means the economy has fared much better in recent times.
According Pictet Asset Management, Russian companies also offer record high dividend yields – a claim backed up by the Janus Henderson Global Dividend Index, which showed that, buoyed by rising energy and commodity prices and a resurgent rouble, Russia saw the best growth in emerging markets in 2017 in terms of dividend payments: underlying growth was 35.7%*.
However, there are considerable sanctions in place currently, due to political tensions. The fact that specific companies were named in these sanctions shocked investors and increased the risks around owning Russian companies.
While a handful of country-specific funds are available, most investors get exposure to Russia through a global emerging market equity fund as it diversifies their risk. Elite Rated funds that have exposure at the moment** include Magna Emerging Markets Dividend (6.5%), M&G Global Emerging Markets (5.66%) and Aberdeen Emerging Markets Bond (6.67%).
While football isn’t everyone’s cup of tea, being host to the FIFA World Cup can have its advantages too: 2% has been added to Russia’s GDP and 220,000 jobs created***.
So, in the spirit of the tournament, here’s our suggestion for an adventurous – but slightly more balanced portfolio: our attacking first eleven in a 1-3-4-3 system:
A well-diversified core fund to start with is Investec UK Alpha. It has at least 50% invested in FTSE 100 companies, with the rest in medium and smaller sized UK businesses. Along side it you could place Threadneedle European Select, which invests predominantly in large European companies that can defend their margins and preferably have barriers to entry.
Matthews Asia Pacific Tiger is another good core fund run by a well-structured and well-resourced specialist team that invests in high-quality companies for the long term. Our final choice for the mid-field would be Lazard US Equity Concentrated, which typically holds no more than 20 to 25 companies US companies, ranging in size from the fairly small all the way through to the very large. Although a concentrated fund, it represents a core market.
In goal, Premier Defensive Growth, could be a reassuringly figure. It aims to deliver a consistent positive return in all market conditions by investing in a portfolio of assets that offer a predictable return over a defined period of time. Other defensive assets could include BlackRock UK Absolute Alpha and Jupiter Absolute Return, two funds that can make money from both rising and falling share prices, and TwentyFour Dynamic Bond, which invests across the whole range of fixed interest assets and has a yield that is usually one of the highest in its sector.
To add some excitement up front, we would choose Fidelity China Special Situations. This trust invests in companies listed in China and on the Hong Kong Stock Exchange and has a bias towards smaller and medium sized firms. In support, you could consider Aberdeen Latin American Equity, which is run by Aberdeen’s renowned emerging markets team and Baillie Gifford Shin Nippon, a trust that invests in Japanese smaller companies where the manager sees innovative growth opportunities.
*Source: Janus Henderson Global Dividend Index, February 2018
**Source: Fund fact sheets, May 2018
***Source: Pictet Asset Management, May 2018