Trust of closed-end funds demonstrates natural bias to uk market
Investment trusts with a value bias are likely to continue outperforming, according to Jupiter Fund of Investment Trusts manager Laurie Petar.
The manager of the £62.2m fund of investment trusts has been trimming his exposure to global generalist trusts in favour of value specialists and those with a small cap bias.
'Markets are still going to be tricky for the next couple of years ' there are a lot of uncertainties out there and for that you need a value-based portfolio rather than a growth-based one,' he said.
Trusts on wide discounts, holding high cash levels or holding stocks on low P/Es, high yields or returning capital are all candidates, he said.
Petar chooses trusts on a geographic asset allocation basis and by the style of individual fund managers, taking account of their style biases, market cap bias and gearing levels.
The fund is overweight specialist, value and small-cap UK trusts, and has had long-term holdings in British Empire Securities, which makes up 7.0% of the portfolio. Other top holdings include Scottish Value at 5.4% and Undervalued Assets at 4.35%. Rather than selling out of trusts and buying new ones according to his investment outlook, Petar prefers to adjust weightings. 'I have a long-term view on holding value-based investors,' he said.
'British Empire has always been a big holding and it has become the biggest because I have sold down 3i and other more aggressive bets.'
Petar said he had also sold down international generalist trusts such as Foreign & Colonial, Witan and Scottish Mortgage when their discounts fell to single figures. In turn, he increased holdings in Undervalued Assets and Murray International, whose discounts had become relatively wide.
He said holding trusts on wider discounts is a more defensive position for the portfolio.
Other large value plays favoured include small-cap value specialist Aberforth, sector specialist Finsbury Pharmaceutical and Gartmore Irish Growth, which makes up 3.8 percentage points of the fund's 10.8% European exposure.
Although he sees the UK market as more attractive than the US and Japan, he said the 57% UK exposure is primarily a result of the bias of the trust sector as a whole.
'Within the investment trust sector, the biggest percentage of investments are in the UK, so it would be a very out-of-kilter portfolio of trusts that didn't have the greater part of its assets invested in the UK,' he said.
The fund also has around 7% exposure to Japan via Baillie Gifford Japan, and Perpetual and Flemings Japanese trusts as well as holdings via generalist trusts. It has an exposure of only around 6% in the US.
Moves to overweight equities and fixed income
The Big Interview: Focus on ethical investment
View from the front row
'No control or oversight'
359 new customers in 2018