For many years the investment trust industry was associated with a few large global growth trusts. Some of these traded on wide discounts and their performance did not always measure up to investors’ expectations but, on the whole, they have improved over the past few years. They still attract most of the attention but now for the right reasons. But what about the other global funds – the smaller ones? Do some of these merit closer attention?
One of the advantages of a smaller fund is that it can be more nimble and invest in smaller companies without facing the liquidity problems that the billion-pound-plus funds would.
A limited number of trusts currently take this approach – the most notable are F&C Global Smaller Companies and Edinburgh Worldwide. Henderson Global Trust, which has a market capitalisation of £133m, does take advantage of this ability to some extent but its main differentiator is its investment policy. Manager Wouter Volckaert believes markets are only semi-efficient and they struggle to analyse significant change events adequately. He seeks to identify companies that are experiencing beneficial change that has not been recognised by the market.
Volckaert is currently cautious on global markets and the portfolio is positioned defensively. He thinks markets have been distorted by quantitative easing over the past few years. Henderson Global’s style has not been suited to this environment and its relative performance has suffered.
The hope is that, as economies start to normalise, share prices will be driven more by fundamentals and earnings growth will do more of the heavy lifting. Henderson Global is trading on a discount close to 10 per cent and its board is keen to reduce this. Improved relative performance is needed to play its part in that process.
The Martin Currie Global Portfolio has a market capitalisation of £170m. There is no discount opportunity here as the fund has adopted a zero discount policy (although for those who don’t like closed end funds due to discount concerns this warrants a closer look). The manager, Tom Walker, runs a diversified portfolio of large well-known companies. Over half the assets are in the US and he is using current market volatility to add to positions but has not yet deployed any gearing.
Like Volckaert, Walker’s focus is on stock- picking rather than trying to second guess market moves. The trust has delivered pretty solid second quartile performance over the medium term but it will be interesting to see how it navigates the coming year if markets remain depressed.
Part of the attraction of global funds is the diversification they offer investors. Some funds go further by investing globally in assets such as bonds, hedge funds and private equity. Two examples of these are Henderson Alternative Strategies and Seneca Global Income & Growth.
Henderson Alternative Strategies is a £92m market capitalisation trust, which is managed by Ian Barass and James de Bunsen. Henderson won the mandate in 2013 and since then the managers have been working on restructuring a portfolio of highly illiquid stocks, many of which they say were of poor quality. This has dragged on performance but with the adjustment largely complete, the managers see the potential for much stronger performance from here.
Matthew Read is senior analyst at QuotedData.