Interactive Investor

Investment trust tips make a winning start to 2014

2nd July 2014 11:13

Fiona Hamilton from interactive investor

Stockmarkets made reasonable net progress over the six months to end May, and so did most of Money Observer's experts' tips for 2014. The FTSE All-Share gained 4.8%, which was just ahead of the 4.4% gain in the MSCI World index, and 13 of the 20 tips were ahead of both figures.

Happily no one selected a Japanese trust, as they have been out of favour. There was only one selection each from Asia Pacific ex Japan and emerging markets, which also struggled for much of the period.

The 2% share price gain by Schroder Asia Pacific was just ahead of its benchmark, and manager Matthew Dobbs has warned that it may be a while before the latent value in parts of the region is more widely recognised.

China

The 4.8% fall in the shares of Fidelity Chinese Special Situations was almost entirely due to a widening discount, as its net asset value (NAV) per share held steady in defiance of a 9% fall in the MSCI China index. Dale Nicholls, who became manager of FCSS in April, expects to maintain the bottom-up contrarian style of his predecessor, Anthony Bolton.

The Growing Income tips offered the most consistent rewards, with all three achieving share price total returns of just over 6%, a little ahead of the average gain in the UK equity income sector. Diverse Income Trust and Finsbury Growth & Income Trust fans could be a little disappointed, having been used to sizeable outperformance.

For Murray International Trust, on the other hand, the gain represented a welcome return to competitive form after several difficult years and was powered by an impressive 11.3% gain in NAV per share over the past three months.

Bruce Stout, who has managed Murray International since June 2004, remains very cautious about growth prospects in the developed world and believes earnings expectations for many multinationals are dangerously inflated.

He has honed his equity portfolio back to 51 companies characterised by "quality, stability and predictability", and has identified more of them in Asia ex Japan, Europe ex UK and emerging markets than in the US or UK.

His largest holdings include British American Tobacco, Mexican airport operator ASUR, Unilever Indonesia, Taiwan Semiconductor and Casino Guichard-Perrachon, which operates hypermarkets, supermarkets and convenience stores in Vietnam, Thailand, Colombia and Brazil as well as in its home country, France.

Balanced income

3i Infrastructure was the best of the Balanced Income tips, achieving a 9.1% share price total return largely because its premium soared from 2.5 to 12.2%. Law Debenture achieved a better NAV total return, but marked time at the share price level because its premium fell from 15% to 9.4%.

Law Debenture currently looks the more attractive of the two, given its strong long-term growth record, decent yield and ownership of an income-producing fiduciary services business which is included in NAV at cost.

The best and worst returns were both in the Speculative Growth category. Shares in Baker Steel Resources fell 12%, whereas the A shares of Hansa Trust gained 12.1%. Hansa's NAV per share has picked up strongly since the start of 2014, helped by a better showing from its large strategic holding in Brazilian port operator Ocean Wilsons, and its share price has risen even faster.

John Newlands of Brewin Dolphin tipped the Hansa A shares, as well as RIT Capital Partners and Finsbury Growth & Income Trust.

Peter Hewitt of F&C Asset Management also did well with 3i Infrastructure, Murray International, Finsbury Growth & Income and Biotech Growth Trust. Tim Cockerill of Rowan Dartington nominated Perpetual Income & Growth Trust, which came third over the six months, International Public Partnerships and FCSS.

Money Oberver's other tipsters were Andrew McHattie, editor of the Investment Trust Newsletter, Robin McAdam of Brooks Macdonald Asset Management and Jean Matterson of Rossie House Investment Management.