Top seven tips for solid growth investing
31st January 2014 10:18
by Helen Pridham from interactive investor
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A huge variety of investment funds aim to generate capital growth for investors. They range from generalist funds to highly specialised versions.
Investing in a specific fund entails investors accepting different degrees of risk in return for a range of potential rewards. So when Helen Pridham asked financial advisers to predict which funds offer the best prospects for growth in 2014, she also urged them to consider which types of investor the funds would suit best.
Solid growth funds will appeal to investors who prefer a steady investment, while higher-risk growth funds are likely to be more volatile and appeal to those with a higher risk tolerance.
Closed-end status means investment trusts can invest in less liquid asset classes without having to worry about realising their holdings in a market setback, says Fiona Hamilton. This enables them to invest in areas that have historically proved particularly rewarding, such as smaller companies, private equity and emerging markets.
Trusts can also increase their assets by borrowing extra funds. So long as this gearing is sensibly priced, it should accelerate the trust's gains in positive market conditions. However, gearing will exacerbate losses in any downturn.
When trusts trade at a discount, investors are getting more bang for their buck. The possible closing of the discount will also enhance share price returns.
Here we look at seven top tips for those who are investing for solid growth in 2014.
For more in the series and to see our experts' profiles, read: Top tips to invest speculatively for growth, Seven top tips to invest for higher-risk growth, Top tips for immediate income in 2014, Seven tips for growing income in 2014 and Top seven tips for balanced income in 2014.
Trust tipsters
Tim Cockerill Rowan Dartington
Rowan Dartington has 20 investment advisers based in seven offices across the south of England. It has £900 million under management. Investment trusts have featured in its discretionary and advisory portfolios for many years.
Peter Hewitt F&C Asset Management
He has managed the F&C Managed Portfolio Trust since April 2008 as well as its forerunner, F&C Managed Portfolio Service, since 2002. He was head of UK equities at Murray Johnstone from 1981 to 1983, before joining Ivory & Sime.
Jean Matterson Rossie House Investment Management
She joined the firm in 1998 after 20 years with asset manager Stewart Ivory. Based in Edinburgh, she is one of five investment professionals managing around £300 million, all on a discretionary basis. Around half is in investment trusts.
Robin McAdam Brooks MacDonald Asset Management
He joined the firm in 2009 from Adam & Company Investment Management. McAdam has 24 years' experience managing private client portfolios, and heads BM's Edinburgh branch. The firm has £5.37 billion under discretionary management in bespoke and managed portfolios.
Andrew McHattie The McHattie Group
McHattie Group is an authorised firm that publishes specialist investment newsletters. He has been the editor of Investment Trust Newsletter since 1996 and offers a free service called the "it list". The company has a Facebook page.
John Newlands Brewen Dolphin
He is responsible for investment trust research at private client stockbroker Brewin Dolphin. He is supported by four analysts who cover specific sectors, researching both open- and closed-end funds. Brewin Dolphin has 35 offices around the UK and Channel Islands, and manages £28 billion, of which £3.9 billion is in investment trusts.
Baillie Gifford Global Discovery
The , picked by Brian Dennehy, invests globally in growth stocks with an emphasis on companies operating in industries with potential for structural change and innovation. It is managed by Douglas Brodie. Dennehy believes the fund has potential.
"Currently, it is split mainly between information technology, consumer discretionary and healthcare," he says.
"Among its top holdings are well-known companies such as and , but also lesser-known stocks such as the , a UK intellectual property company with a portfolio of more than 60 companies across a range of sectors."
Dennehy points out that Brodie has had considerable experience and success in identifying growth opportunities, particularly among exciting smaller-cap stocks.
CF Lindsell Train UK Equity
After many decades of researching and selecting investment funds, Husselbee says he has learnt that he much prefers investors to traders.
Renowned investor Warren Buffett takes a similar view, and Husselbee believes Nick Train, manager of the , invests like Buffett. With a concentrated portfolio of 25 UK companies, Train looks to buy great companies when they are good value and then hold them "forever".
Husselbee says: "Train talks about 'baggers' in his portfolio - a phrase borrowed from another great investor, Peter Lynch. These are stocks that can multiply five or maybe 10 times over the long term. Those baggers are very familiar consumer brands such as , Heineken and ."
Cazenove UK Opportunities
The aims to achieve long-term capital growth from a focused portfolio of 40 to 50 large and medium-sized UK companies. Gavin Haynes says fund manager Julie Dean has built up an excellent track record and employs a philosophy based on the belief that the business cycle is of utmost importance in determining how stocks will perform and how a portfolio should be positioned.
Haynes says: "There are no formal stock or sector restrictions, although Dean aims to be fully invested at all times. She also looks for short-term opportunities to help add value to the long-term core positions."
Securities Trust of Scotland
Robin McAdam likes , which seeks rising income and long-term capital growth from a focused portfolio of global equities. The trust yields 3.3%, paid quarterly, so it provides income and growth potential. It has a low weighting to Asia and emerging markets, while European shares comprise more than 50% of the portfolio and North American equities 35%.
"With assets of £175 million, the trust is able to enter and exit positions easily, and has outperformed its benchmark in recent years. We expect this to continue under the guidance of Martin Currie and lead manager Alan Porter," says McAdam.
Finsbury Growth & Income Trust
Peter Hewitt nominates , on the basis of its very strong short- and long-term performance record. Manager Nick Train seeks out the highest-quality companies and looks to hold them for a long time.
As a result, the portfolio is restricted to around 25 holdings and turnover is minimal. The portfolio is dominated by companies with brands that Train expects to demonstrate longevity, such as , Unilever, Heineken and AG Barr. Although most are listed in the UK, their activities are generally global.
"The manager looks for strong cash generation and dividend growth, which he believes are persistently undervalued by the stockmarket," Hewitt says.
RIT Capital Partners
Selected by John Newlands, the multiasset is the flagship financial vehicle for its chairman Lord Jacob Rothschild and his family.
"Given the uncertain world we live in, it is no bad thing to be diversified both globally and across a range of asset classes, including real estate, fixed income, unlisted companies and private equity. RIT is a global growth trust that offers a combination of these benefits," Newlands says.
His enthusiasm is bolstered by RIT's current relatively wide discount. This reflects disappointment among investors that it was rather too cautious over the past two or three years, though it picked up quite well in 2013.
Perpetual Income & Growth Trust
This trust is classified as a member of the AIC UK growth & income sector, but its yield tends to be below average for the sector, because manager Mark Barnett is more interested in income growth than in immediate income. Tim Cockerill therefore classifies as a total return trust and makes it his solid growth choice.
Barnett has secured excellent long-term returns during his 15 years at the helm, and Cockerill is not unduly worried about the fact that he will take over as head of Invesco Perpetual's UK equities team when Neil Woodford leaves in April. He describes Barnett's approach as "inherently conservative".
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.