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Investment Trusts as non core holdings

Closed-end funds and OEICs
Pendrainllwyn
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Investment Trusts as non core holdings

#137209

Postby Pendrainllwyn » May 6th, 2018, 6:56 am

Vanguard funds form a core foundation for my investments. These are skewed to low cost passive funds. On top of that core foundation I invest in single name equities and other assets. Most Investment Trusts have costs above a low cost passive fund so I only use them when I think they offer me something that I cannot find in a lower cost Vanguard fund.

I currently hold four Investment Trusts which don't get much attention on this forum.

1. JPMorgan Indian
With 1.3 billion people, of which more than 50% are below 25 years of age, an entrepreneurial culture and English as their business language India is well placed for economic growth. I have visited India most years since the mid 90's and progress, which has lagged China, is now accelerating. The downside is this trust pays no dividend and I am not anticipating it ever will. Trades at a 14% discount. Have held since the late 90's, added to recently. Expecting a volatile ride but happy to hold for another 20 years.

2. Middlefield Canadian Income
Another country specific fund although it has the flexibility to invest in US stocks. Currently 82% invested in Canadian and 16% in US equities. I have a soft spot for Canada and attracted by the yield of 5.28% and its quarterly distribution. Trades at a10% discount. More recent acquisition. Down on my investment so far but would be happy to add should funds come available.

3. NB Private Equity Partners
Private equity exposure. 73% direct private equity investments, 16% direct private income investments and 11% in private equity funds. The direct investments co-invest with private equity funds (both in-house and third party). The 11% in private equity funds are deemed to be legacy investments and as they mature funds are recycled into direct investments. 82% of the fund is invested in the US and 14% in Europe. The fund trades at a 20% discount and offers a 3.7% dividend yield.

4. British Empire Trust
This is the largest of my four holdings. I like the manager, Joe Bauernfreund, and the fund's investment philosophy. British Empire invests in companies and funds that trade at a discount to their net asset value. However they don't blindly buy discounts; they look carefully at the quality and growth potential of the underlying assets and also for catalysts which will help narrow the discount. They actively engage with companies to recommend strategies to close the discount. They are concentrated with around 90% of the fund invested in 20 holdings. I have successfully invested in a few of the fund's investments including NB Private Equity Partners. Trades at a 11% discount and the underlying portfolio traded at a 27.6% discount at the end of March so you benefit from a double discount. Vast majority of underlying investments are not sterling denominated so the fund's NAV generally benefits/(suffers) from a weak/(strong) pound. Joe isn't as eloquent as Terry Smith but if you want to know more his 20 minute 2017 investment review is worth a watch: https://www.youtube.com/watch?v=zkB8BvaYA_Q&t=684s

I have considered Caledonia Investment Trust on a number of occasions but have never pulled the trigger. Any recommendations for Investment Trusts that have a specific area of focus?

Pendrainllwyn

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Re: Investment Trusts as non core holdings

#137222

Postby StOmer » May 6th, 2018, 9:29 am

Miton Global Opportunities (MIGO) is an interesting option, the manager targets IT discounts. The Annual and 6-Monthly reports are worth a read. This one sits in the flexible sector.

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Re: Investment Trusts as non core holdings

#137243

Postby richfool » May 6th, 2018, 11:56 am

Pend,

I like and hold MCT and have for many years. It continues to churn out a very healthy dividend.

I have noticed its SP can wax and wane according to exchange rate movements (between the £ and the CAN$ dollar), which I've got used to now and am not unnerved by.

Ecofin Global Utilities & Infrastructure is one you might want to take a look at:

viewtopic.php?f=54&t=9470

StOmer, I have looked at MIGO in the past, but stayed away because it was a small trust (less than £100M) and had little or no dividend yield.

Pendrainllwyn
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Re: Investment Trusts as non core holdings

#137262

Postby Pendrainllwyn » May 6th, 2018, 2:22 pm

Thank you both. Have read the annual reports. Both have their merits.

Ecofin Global Utilities and Infrastructure. I like utility/infrastructure assets and can see myself owning this. I own NextEra Energy their current largest holding. Whilst they provide a lot of commentary, I wish they explained more as to why they invest in the companies they do; I am a bottoms up oriented investor. Maybe they are more top down.

Miton Global Opportunities. There is some overlap between it and British Empire Trust. British Empire invests in closed end funds but also in other securities, such as family controlled holding companies, which trade below NAV. Yes, I like their commentary. I need to spend some time looking at the underlying holdings - many of which I am unfamiliar with. The annual fee of 1.4% looks on the high side.

Thanks again,
Pendrainllwyn

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Re: Investment Trusts as non core holdings

#137327

Postby shawsdale » May 7th, 2018, 8:04 am

If your Vanguard allocation doesn't cover these areas, then a couple of suggestions would be:

- Emerging/Frontier market exposure (e.g. Blackrock Frontiers, BRFI).
- Smaller companies (e.g. FCS) or a selection of the better performing regionally focused smaller company vehicles (e.g. BGS, but high premium may rule that out). I did consider WOSC (MSCI World Small Cap ETF) but was concerned at its high US exposure.

I have a small amount in an ETF attempting (uniquely?) to combine emerging market and small company exposure with dividends (albeit yield around 2.5 to 3%), namely Wisdom Tree Emerging Markets Small Cap Dividends (DGSE). In capital terms it has performed better than JEMI (and the open-ended fund it replaced in my portfolio, Newton Emerging Income) in recent times.

Pendrainllwyn
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Re: Investment Trusts as non core holdings

#137372

Postby Pendrainllwyn » May 7th, 2018, 3:00 pm

Hello St0mer,

I had to take a flight today and managed to read a dozen reports from companies Miton Global Opportunities are invested in. Quite an assortment. I can see the fund has performed really well of late but I am a little worried how some of the smaller investments might perform in a downturn, they could be quite illiquid, so I don't think buying in now is the right timing. I did come across a couple of underlying investments I found very interesting. Unfortunately one insists on charging an upfront entry charge - never paid one and don't want to start now. Another I will look into further.

Thanks again for the suggestion.

Pendrainllwyn

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Re: Investment Trusts as non core holdings

#137378

Postby Pendrainllwyn » May 7th, 2018, 3:26 pm

Hello shawsdale,

Frontier markets are definitely outside my circle of competence.

So you get a yield of 2.94% investing in a portfolio of 779 Emerging Market Small Caps when the S&P 500 is yielding 1.94%. Food for thought.

Pendrainllwyn

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Re: Investment Trusts as non core holdings

#137435

Postby 77ss » May 7th, 2018, 10:49 pm

Pendrainllwyn wrote:....Most Investment Trusts have costs above a low cost passive fund so I only use them when I think they offer me something that I cannot find in a lower cost Vanguard fund......

.....Any recommendations for Investment Trusts that have a specific area of focus?

Pendrainllwyn


As a general comment, I would not focus on costs, but on performance.

Several years ago, I started to move into ITs, to complement my HYP - specifically to invest in areas which my HYP did not cover.

Like another poster, small companies interested me, and Henderson Smaller Companies has done well for me. More recently I have bought a non-UK European equivalent - JP Morgan European Smaller Companies.

In niche areas, I have Worldwide Health, which has also done well and more recently a technology focused IT - Allianz Technology Trust.

Like you, I have some private equity. Can't say that I was aware of NBPE - one for me to look at - given its US bias - something I wouldn't mind. I chose F&C Private Equity and Standard Life European Private Equity - giving me about 55% in non-UK Europe, 25% in the UK and 17% in North America.

Low yields on the whole (except for the two PE ITs), but I am quite happy with the total returns.

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Re: Investment Trusts as non core holdings

#138025

Postby xiox » May 10th, 2018, 10:35 am

Pendrainllwyn wrote:4. British Empire Trust
This is the largest of my four holdings. I like the manager, Joe Bauernfreund, and the fund's investment philosophy. British Empire invests in companies and funds that trade at a discount to their net asset value. However they don't blindly buy discounts; they look carefully at the quality and growth potential of the underlying assets and also for catalysts which will help narrow the discount. They actively engage with companies to recommend strategies to close the discount. They are concentrated with around 90% of the fund invested in 20 holdings.
Pendrainllwyn

I like the philosophy, but the trust seems to track their benchmark rather closely (MCSI World ex-US), although it has some US holdings. This is despite the concentrated portfolio.

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Re: Investment Trusts as non core holdings

#138078

Postby SalvorHardin » May 10th, 2018, 2:07 pm

Two candidates:

Law Debenture. Global investment, though much more biased nowadays towards UK large caps than it used to be. Annual management fee of just 0.3%, which beats many trackers (especially those with platform fees). What really sets it apart is its wholly owned fiduciary services business which generates roughly 45% of Law Debenture's dividend. Trackers can't hope to replicate this.

Caledonia Investments. Lots of private equity (30%-ish), some of which are majority owed or wholly owned businesses (e.g. Seven Investment Management). Self-managed, the Cayzer family owns 48.5% of it. Total running costs fluctuate, thanks to the private comanies; last year they were 1.07%. The days when you could buy these on a near-40% discount are long gone, currently it's about 18%. Caledonia has paid special dividends which most performance site ignore, thus understating its performance.

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Re: Investment Trusts as non core holdings

#138169

Postby richfool » May 10th, 2018, 8:51 pm

77ss wrote:Like you, I have some private equity. Can't say that I was aware of NBPE - one for me to look at - given its US bias - something I wouldn't mind. I chose F&C Private Equity and Standard Life European Private Equity - giving me about 55% in non-UK Europe, 25% in the UK and 17% in North America.

I too hold SLPE, and like its dividend yield, c 3.64%. I was however recently looking at its KIT and noticed that whilst its "portfolio transaction costs" were a modest 0.03%, the "other ongoing costs" were: 5.95%. I presume that is because it is something of a fund of funds, - investing in other Private Equity funds. However, despite its good performance, charges of 5.95% seem very high to me, and are causing me rethink my wish to continue to hold the trust.

77ss
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Re: Investment Trusts as non core holdings

#138208

Postby 77ss » May 11th, 2018, 1:01 am

richfool wrote:
77ss wrote:Like you, I have some private equity. Can't say that I was aware of NBPE - one for me to look at - given its US bias - something I wouldn't mind. I chose F&C Private Equity and Standard Life European Private Equity - giving me about 55% in non-UK Europe, 25% in the UK and 17% in North America.

I too hold SLPE, and like its dividend yield, c 3.64%. I was however recently looking at its KIT and noticed that whilst its "portfolio transaction costs" were a modest 0.03%, the "other ongoing costs" were: 5.95%. I presume that is because it is something of a fund of funds, - investing in other Private Equity funds. However, despite its good performance, charges of 5.95% seem very high to me, and are causing me rethink my wish to continue to hold the trust.


Yes, it is high. But maybe that's the price you pay for a broad geographically based PE IT.

Find a better performer, with a similar geographical exposure - and then check their KIT. FPEO, my other PE IT has a significantly lower ongoing charge of 3.95% - but a much narrower exposure - which is why I split my PE investment between the two. They have similar yields.

Over the past 5 years, SLPE has risen by 81.4%, but FPEO by 64.71% (AIC NAV data). If you know a better hole, for the geographical spread that I want, do let me know - my research prior to investment was by no means exhaustive!

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Re: Investment Trusts as non core holdings

#138302

Postby Pendrainllwyn » May 11th, 2018, 12:34 pm

Hi xiox,

xiox wrote:I like the philosophy, but the trust seems to track their benchmark rather closely (MCSI World ex-US), although it has some US holdings. This is despite the concentrated portfolio.


Yes, you are quite right - it tracked the index very closely between Sept 07 and late 2015. There has been outperformance since late 2015 which coincides with Joe becoming the portfolio manger in Oct 2015. Remains to be seen whether that can be sustained.

Pendrainllwyn

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Re: Investment Trusts as non core holdings

#138317

Postby Pendrainllwyn » May 11th, 2018, 1:02 pm

Thanks all for the good suggestions.

Caledonia continues to tempt me.

I am also tempted by BlackRock Frontiers as I have no exposure there. I note that they have discussed whether it would be sensible for the Company to expand its range of permitted markets to include the 16 small Emerging Market countries that make up only 15% of the MSCI Emerging Market Index (the large 8 make up the remainder). As they note, at the moment the Frontiers Fund loses countries as they get promoted to Emerging Market status and new additions to Frontier status are unlikely to keep pace so there is a risk that concentration increases within the remaining Index. Whilst that would create overlap with an Emerging Market fund I would personally welcome this.

Pendrainllwyn


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