Top 12 growth investment trust picks
"Growth has been the stand-out style factor for the past seven years and shows little sign of abating in a global economic environment that continues to build momentum," writes Peel Hunt Monday.
Buying highly-rated growth stocks has been a profitable trade for years, just ask star fund manager Terry Smith. His market-beating Fundsmith Equity fund has generated an annualised return of 23% over five years!
Taking a broad approach to the definition of growth, Peel Hunt casts its net far and wide to cover high growth regions, markets and sectors, plus specific trusts offering strong capital growth potential and/or a catalyst for re-rating.
"Some ideas are not cheap, but we would still consider them to be top picks," says the broker. "Investors may want to finesse their timing of buying into these trusts should premium multiples be unpalatable."
"From a top-down perspective, highlights include Asia and EM Equities, the compelling combination of valuation and growth in healthcare, and the power of smaller companies."
Here's what Peel Hunt thinks about some of its best ideas.
Monks Investment Trust (MNKS), managed by Charles Plowden, Spencer Adair and Malcolm MacColl since March 2015, has had a spectacular run, more than doubling in value since early 2016. But Peel Hunt still rates it a key pick for both qualitative and quantitative reasons.
"The managers' unconstrained and long-term approach captures Baillie Gifford's best global equity ideas and maintains a high active share (92%)," it says. "In our view, MNKS's alpha generation is underpinned by the conviction-weighted approach, the team's valuation-awareness and its active management of thematic risk concentration."
Since taking over, the new team has delivered 66% cumulative return versus the MSCI AC World Index up 49%, and the sector average net asset value total return (NAV TR) up 53%.
For that kind of performance, particularly of late, thank online platforms such as Alibaba (BABA), Lendingtree (TREE), Naspers and Autohome (ATHM), semi-conductor exposure via NVIDIA (NVDA) and Samsung Electronics, and growth stars like Royal Caribbean Cruises (RCL) and Prudential (PRU).
"The blend of different growth styles leads to an aggregate portfolio valuation of 21x forward PER, 20% forecast earnings growth, 14% ROE and a 14% debt-to-equity ratio. The significant turnaround in performance has resulted in the discount narrowing significantly over the course of this three-year timeframe, from around a 15% discount to a 3% premium today."
BlackRock on firm footing
Investors who backed BlackRock Smaller Companies (BRSC) in early 2009 have been richly rewarded by the Mike Prentis-run trust.
"BRSC's longer-term track record is exemplary, with 14 consecutive years of outperformance, driven by a mix of stock picking, gearing and sector allocation," points out Peel Hunt. "In addition, the trust has seen 14 years of consecutive annual dividend increase, resulting in a five-year dividend [compound annual growth rate] of 20%."
"BRSC currently trades on a 13% discount, which is in line with its own 12-month average discount but wider than the peer group average discount of 10%," writes Peel Hunt. "We consider this to be good value for one of the best performing trusts in the sector."
"Over the past five years, Henderson Opportunities Trust (HOT) has returned double that of the FTSE All Share (ASX), and the last 12 months have seen continued strong relative performance," cheers Peel Hunt.
"Given the performance track record and the unique qualities, it is surprising to see a trust of this calibre trade on a 16% discount, particularly as this is a materially wider discount than both the UK All Companies and the UK Smaller Companies sector averages."
Out of this world
Investing in 35-45 "special" companies has paid off for Alexander Darwall's Jupiter European Opportunities (JEO). Backing healthcare and digital winners like Wirecard (WDI), Syngenta (SYT), RELX (REL), Grenke and Fresenius (FRE) has driven outperformance of 17% cumulative versus the market.
"We continue to have confidence in this strategy and its growth credentials and, given that we would expect this trust to maintain a rating at or above par, we would advocate buying on any periods of share price weakness," writes Peel Hunt.
Templeton Emerging Markets (TEM) has doubled in value over the past two years, but Peel Hunt believes the current 11% discount "looks attractive, especially when compared against the recent buyback activity, which has consistently intervened at the 12% level".
Watch JPMorgan Asian (JAI) for income, too. The recently introduced dividend policy pays out 1% of NAV each quarter and makes JAI the best performing Asian income fund. Peel Hunt thinks that the current 9% discount looks "particularly attractive".
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.
|TEMPLETON EMERGING MARKETS ...||785.00p||1.03%|
|FTSE ALL SHARE||£4,012.28||0.84%|
|ALIBABA GROUP HOLDING LIMITED||$183.68||-2.01%|
|BLUE PRISM GROUP||1,480.00p||2.49%|
|ADVANCED MEDICAL SOLUTIONS ...||318.00p||-0.16%|
|BLACKROCK SMALLER CO TRUST ...||1,365.00p||2.63%|
|HENDERSON OPPORTUNITES TRUS...||1,040.00p||-0.95%|
|JPMORGAN ASIAN INVESTMENT T...||364.00p||0.55%|
|JUPITER EUROPEAN OPPORTUNIT...||745.00p||1.50%|
|MONKS INVESTMENT TRUST PLC ...||790.00p||0.89%|
|ROYAL CARIBBEAN CRUISES LTD||$131.68||-0.02%|
|FRESENIUS SE & CO KGAA||€63.94||1.36%|
|All data 15min delayed as of: 00:46:27 18/02/18|