Investment trusts have the advantage of providing investors with a diversified portfolio and the shares in them can be traded just like any other shares. This means that unlike investment funds, if investors want to withdraw their money the trust isn’t forced to sell assets, often at an inconvenient time, to meet that demand. Trusts, like funds, are professionally managed, which of course means costs are a consideration.
Another advantage of many trusts is that they a good many of them trade at a discount to their net asset value. Providing a margin of safety to investors.
A third advantage, which seems especially pertinent now, is that trusts can hold reserves, enabling them to continue paying dividends during bear markets.
Here I’m highlighting just five investment trusts which provide investors with exposure to companies based and largely operating outside of the UK. Some of them also have very high yields and others have dividends with greater ability to grow year-on-year and provide better overall returns.
Bankers Investment Trust (LON:BNKR)
This investment trust offers investors access to a global portfolio of companies. The largest holdings are mainly US-based companies including Microsoft which is followed by Estee Lauder Companies and Visa. UK companies such as GlaxoSmithKline Royal Dutch Shell, Diageo and British American Tobacco also feature in the top holdings.
The trust’s objective is to over the long term to achieve capital growth in excess of the FTSE World Index and annual dividend growth greater than inflation, as defined by the UK Retail Prices Index (RPI), by investing in companies listed throughout the world.
At the end of 2019, the trust had 180 individual investments, with the largest investment, Microsoft, accounting for 2.62% of the total value of the portfolio.
The trust invests 23.5% of assets into financials followed by consumer goods (19%) and technology (14.5%).
Bankers tends to trade at a far narrow discount, which may be off-putting to some investors. It’s also not particularly high yielding at 2.5% but it does offer access to some high potential US companies, which might be good for UK private investors. Especially if you are looking for growth rather than income and have confidence that US technology will continue to outperform.
The trust also features on the Association of Investment Companies’ (AIC) list of ‘dividend heroes’ because they have raised their dividends for 20 or more years in a row. In Bankers case the dividend has been raised for over 50 years.
The share price has also done well, over five years the shares have increased by just over 50%.
JP Morgan European Smaller Co IT (LON:JESC)
This trust focuses on capital growth and it warns that shareholders should expect the dividend to vary from year to year. The yield is on the smaller side at 2.25%
The holdings of the company are most likely companies you’ve never heard of – which means this genuinely is a fund focused on smaller companies. Companies such as SIG, Logitech, AAK and Falck Renewables make up the top holdings.
A lot of the top 10 holdings are new to the trust in the last year, indicating that management are quite active in managing the portfolio and will change the companies the trust holds frequently. This could well give greater opportunities for investors to be indirectly invested in some of the best companies in Europe. The top five holdings have all changed since the beginning of the year.
Swiss companies constitute the largest country within the fund at 18.7%, followed by French (12%), Italian (11.4%), Dutch (11%) and German (9.8%). In terms of sectors, the trust is heavily focused on industrials which make up just under a fifth of the total (19.5%), followed by information technology (15.8%) and healthcare (12%).
The trust’s shares currently trade on a discount of around 11.2% which is less than the historical average discount which is 14%. The share price has increased by 22% over the last five years, but that does include the recent dip. At the end of February, the performance was more like 70% capital growth.
The charges are 1.07% which makes them about equivalent to a lot of international funds. Over the last five years however, both the NAV and the share price have consistently outperformed the benchmark.
Scottish Investment Trust (LON:SCIN)
This is a global investment trust, listed on the FTSE 250. The dividend yield is around 3.1% and has been increased for 46 consecutive years. The shares now have a significant discount to the net asset value of 13%. The discount had grown to -27% when markets fell heavily back in March. For reference over the last 12 months, the discount has trended to be towards 9%. So the shares still offer a nice margin versus their historic norm.
Top holdings as of the end of March 2020 were 3 mining companies, Newmont, Barrick Gold and Newcrest Mining. The rest are better-known companies such as Tesco, Japan Tobacco, Pfizer, Roche, BT, United Utilities, PepsiCo and GlaxoSmithKline. It’s interesting to note that the trust has 0% invested in information technology – an area that has done well for other trusts in recent years. Instead, its biggest sectors are materials (usually miners), consumer staples, communication services and healthcare.
Also, given recent news about a possible drug for treating coronavirus, Gilead Sciences, is the seventh biggest holding. At the end of January 2020, it wasn’t a holding in the trust at all.
Since the end of January, it’s noticeable that the trust has increased its weighting towards gold miners and reduced it’s holding in US retailer, Target.
The trust’s biggest region is the United States which accounts for about 30% of the portfolio’s assets. The UK accounts for 21% and Europe (exc UK) for just under 15%.
In the monthly commentary for March, the company updated:
“At The Scottish, we noted the muted stockmarket reaction to China’s shut down of swathes of its economy in an attempt to stop the virus’s spread. Having felt that many investors were not appreciating the growing risks to the global economy, we made some timely changes to our portfolio ahead of the sell off. In essence, we increased investment in companies with resilient revenues and reduced investments that were more reliant on a supportive economy.
Gilead Sciences was one of the companies we added to our portfolio as we sought investments with the greatest resilience to the challenging economic backdrop. In March, its shares performed as we had hoped, gaining 10% as markets fell. The company is a leader in anti-infective drugs, offering more stable sales irrespective of the economic environment. Its strong balance sheet adds to the security of its business. We believe that the discount on which its shares trade relative to its sector peers is unjustified. Moreover, alongside its capacity to weather difficult markets, we see opportunities for Gilead to build its pipeline of promising medicines.”
This trust has been actively managed to increase its defensive holdings. Meaning should markets fall further that should help protect the share price. The shares have risen 12% in the last five years; they were up 28% at the end of 2019.
Murray International (LON:MYI)
Murray International is another global investment trust. The shares have fluctuated between a small discount and usually a premium of up to around 7% over the last 12 months. The trust invests across equities and fixed income assets. This is split between 49 equity investments and 27 fixed income assets. Its twenty largest equity holdings account for 50% of the portfolio and include Taiwan Semiconductor, Grupo Aeroportuario, Taiwan Mobile, CME, Roche, Philip Morris, Verizon Communications, Sociedad Quimica Y Minera De Chile, Oversea-Chinese Banking and British American Tobacco.
Around 30% of equities are in the Asia Pacific region excluding Japan. North America is 18% and the UK accounts for just under 7%.
Regarding coronavirus, the manager has said:
“Murray International maintains a very diversified portfolio of global equities and bonds. In addition to emphasising companies with strong balance sheets and proven management teams, those possessing deep financial resources and robust historical dividend track records are deemed of great significance under current conditions. Having exposure to numerous such businesses has always been fundamental to the Trusts investment process.
Against the daily changing backdrop of clinical, political and economic events, providing a credible near-term outlook is both futile and irresponsible. Current conditions demand constant daily scrutiny of the business fundamentals of underlying holdings and the implications of virus related impacts, yet also remaining alert that at some point some semblance of normality will undoubtedly return. During times of severe market dislocations it is always very important to remain calm, objective and humble, but with the longer term outlook in mind, also vigilant and pro-active to attractive investment opportunities that are presented by such extraordinary volatility and prevailing fearful behaviours. Such focus will continue to be rigorously adhered to.”
Charges on the investment trust equate to 0.61%, which is cheaper than most international funds and I think represents pretty good value. Although the share price has fallen over the last five years, so investors will need to expect an improved performance to consider buying in. On the upside for income investors is the fact the shares do yield 5.7%, which is far higher than the FTSE 100.
Henderson Far East Income (LON:HFEL)
This pan-Asia trust tends to have a dividend yield that is higher than most individual companies and tends to trade only at a small discount and sometimes at a premium.
Top holdings in the trust include, in order of size:
Taiwan Semiconductor Manufacturing, Samsung Electronics, Macquarie Korea Infrastructure Fund, HKT Trust & HKT, China Yangtze Power, Taiwan Cement, Digital Telecommunications Infrastructure Fund Inc THB, Ascendas Real Estate Investment Trust, China Railway Construction and China Construction Bank.
Financials account for just under a third of the fund. Telecommunications just over 15% and technology 13%. 30% of the trust is invested in China, followed by Australia (16.5%), Taiwan (12%) and South Korea (9%).
Most of the time the share price is near to the net asset value, fluctuating between a slight discount and a slight premium.
The main attraction of this trust is the dividend yield, especially in these times of dividend cutting by individual companies. The shares yield 7%.
Gearing for the trust is at the low end of what’s typically seen amongst trusts at 4.8%. This should protect the downside as high gearing increases risk in volatile markets.
The share price performance hasn’t been strong over the last five years however rising only by 11.5% on a cumulative basis. The yield once again would be the main attraction for an investor looking for income. Especially if the discount to NAV widens.
I think investment trusts have advantages for private investors and should be part of a portfolio. That said, for active investors they’ll likely only ever be a part of a portfolio because choosing your own investments and keeping costs down is what many investors want to do.
For UK investors I think relatively cheap access to a diversified portfolio of international stocks is a smart way to spread risk, especially in the current volatile market. For those looking for income from investments, trusts are one of the surest ways to keep receiving income given many have paid dividends consecutively for sometimes fifty years plus. I’d recommend buying through when the discount is greater than the 12 month average and by and large avoiding trusts that have increased their premium.
I’ve also looked previously at three investment trusts I believe can prosper though coronavirus.
Note author owns shares in Scottish and Murray investment trusts.