Investment gratitude: what Elite Rated managers are thankful for
Thanksgiving is just around the corner, a holiday that doesn’t always get the best rep (both inside...
When the world is mired in uncertainty it can be very difficult to know where to invest. So, during these times, it can make sense to take a more global approach. Why? Because putting your faith in a fund manager that can invest anywhere across the globe means you have a greater chance of enjoying diversified returns.
But where should you start? Which investments are worth considering and how are the managers at the helm putting together their portfolios?
One option would be a global investment trust. Some of these products have been around for more than 150 years – surviving many a market cycle – and have qualities that make them attractive to many investors.
They are known as ‘closed-ended’ as there will only ever be a set number of shares available to buy, while investors’ cash is pooled into a wide range of areas and companies.
They can access more specialist areas of the market, like private equity and infrastructure, as well as social and environmental impact investments. They are also able to smooth the income they pay out by holding back income generated in good years to pay out another time.
The next question is which investment trusts should you put your money in? There’s no shortage of contenders, but here are the five that are Elite Rated by FundCalibre:
The managers of this trust can invest freely between various markets, sectors, industries, market capitalisations and asset classes, as investment opportunities allow.
While the number of individual holdings will vary over time, the managers usually have between 40 and 140 to ensure a decent amount of diversification. According to the most recent factsheet, its top holdings include many corporate giants such as Microsoft, Alphabet (parent company of Google), Pfizer, Adobe Systems, and MasterCard*.
In a recent update, the managers revealed that healthcare and telecoms had been their best performing themes. “The low weighting in cyclical sectors, emerging markets and limited exposure to the UK and core European economy should defend the fund somewhat against further falls in the market,” they said.
This trust dates back to 1909 and today invests in a high conviction, global portfolio of companies with the aim of maximising the total return to shareholders over the long term. While most of the portfolio will be held in quoted equities, a maximum of 30% of assets can be invested in companies not listed on a public market.
The managers, Tom Slater and Lawrence Burns, look for strong, well-run businesses that offer the best potential durable growth opportunities for the future. They assess the strength of management, a company’s competitive and financial positions, the customers’ perspective, prospects for sales and margins, and current and potential valuation.
They will also take into consideration how the market and the managers’ views differ and what will happen after five years. This trust is an out-and-out growth vehicle, so performance has suffered in recent months, but over the long-term it has proven to be very successful.
According to the most recent factsheet, the trust invests in many house-hold global names, including retail giant Amazon.com, electric vehicle maker Tesla, and pharmaceutical company Moderna*.
The aim of this trust, which was launched back in 1889, is to secure a high total return by investing in smaller companies across the world. This objective means investing in high quality companies at attractive prices that offer the potential for strong returns, while also trying to minimise the risk profile. It has successfully produced 50 years’ worth of dividend growth for investors.
The trust’s lead manager, Peter Ewins, and his team focus on individual company investments within the US, UK, and European markets. However, the portfolio also has third party fund holdings of stocks in Japan, Asia, Latin America, and other areas. This gives it a truly diversified smaller company exposure.
The team meets individual companies to assess the quality of their management, their position in their targeted markets, and their strategy for growth. Their financial strength and cash flow dynamics is also considered as this is seen as particularly important given that smaller companies tend to have less funding options than larger rivals.
The trust aims to maximise total returns from emerging markets and provides investors with a diversified portfolio of shares. These names are the ones that the managers, Austin Forey and John Citron, believe offer the most attractive opportunities for growth.
According to the most recent factsheet, China has the lion’s share of the geographic allocation at 23.4%, followed by India with 20.9% and Taiwan on 13.4%*. Other emerging countries represented include Korea, South Africa, Indonesia, Brazil, Mexico, and Argentina*.
Among the top holdings are Taiwan Semiconductor, HDFC and Tencent, while information technology, financials, and consumer staples are the most significant sectors*.
In recent commentary, the managers noted how they’d maintained exposure to companies with sustainable competitive advantages, consistent cash flow generation and strong managements. “This has worked well for the portfolio over the long term, and we remain confident that it is the right strategy to pursue in current market conditions,” they said.
As the name suggests, this trust offers an international portfolio of UK and global equities, but it can also invest in bonds. The manager may invest anywhere in the world and in any sectors, with a focus on maintaining an above-average yield for investors.
In a recent video interview, we heard how the portfolio could potentially be better able to weather periods of market volatility, the high inflationary environment and even a potential recession.
26.7% of the equity investments are currently in companies listed in Asia*. 25% is in North America, while there is a further 20.2% in Europe, 12% in Latin America and emerging markets, and 5.6% in the UK*. Around 10% of the portfolio is allocated to bonds in Latin America and emerging markets. Asia, Africa, the UK, and Europe*.
Manager Bruce Stout has a firm eye on valuations and said last month that companies are facing an increasingly uncertain environment. “In addition to near term pressures from rising input costs, wages, supply chain shortages and higher debt-servicing costs, the very real possibility of lower growth rates and lower profit margins impacting a more ‘restrictive’ future world has significant implications for sustainable valuations and dividends,” he said. “Against such a backdrop the portfolio remains focused on real asset, quality companies and strong balance sheets.”
*Source: Fund factsheet, 31 July 2022