Jupiter European Opportunities, Foreign & Colonial and JPM Asian are among the top picks of 2018 from research firm Winterflood Investment Trusts.
After a solid year for the firm’s model portfolio, Winterflood has revisited its investment trust selections and made several changes.
Last year 34 of the 47 funds and securities in the model portfolio outperformed their relevant indices over the period they were included on its recommendation list.
Indeed, the model portfolio delivered a total return of 19 per cent in 2017 and outperformed the FTSE UK Private Investor Balanced benchmark’s gain of 10 per cent.
Of the 34 that outperformed, an international equities trust - TR European Growth Trust - was the strongest performer. The four FE Crown-rated trust’s share price was up by around 60 per cent last year.
Performance of trust in 2017
Source: FE Analytics
The trust - overseen by Janus Henderson’s Ollie Beckett, benefited from a strong period for European small-caps and was further boosted by discount tightening.
Despite outperforming last year, Winterflood has exited the TR European Growth Trust following the tightening of the trust’s discount last year.
Winterflood has instead added the four FE Crown-rated Jupiter European Opportunities trust – overseen by FE Alpha Manager Alex Darwall – to its model portfolio to sit alongside Fidelity European Values.
The firm noted: “Alexander Darwall’s consistent investment approach and his emphasis on ‘special’ companies has delivered strong performance for Jupiter European Opportunities.”
Winterflood noted that the manager’s benchmark agnostic approach and relatively high concentration suggests it should not be considered a proxy for mainstream European equities.
Furthermore, it highlighted the fund’s high weighting to UK equities at 27 per cent of the portfolio, compared with the manager’s Europe ex-UK open-ended vehicle, Jupiter European.
“Although the fund’s shares have been re-rated recently and trade on a tighter discount than the peer group average, we believe that the current discount of 3 per cent still offers some value with potential for the fund to move to a premium,” the analysts noted.
“In our view the fund remains attractive on a long-term view and is a credible alternative to the manager’s open-ended fund, which has a lower weighting to the UK.”
Elsewhere in the model portfolio, Winterflood has switched out of from Law Debenture to the Foreign & Colonial Investment Trust “an attractive ‘one stop’ global equities saving product”.
Law Debenture, managed by Janus Henderson’s James Henderson, delivered a return of 22.22 per cent last year. However, this year the firm has decided to back Foreign & Colonial highlighting the upcoming 150th anniversary and the potential for greater demand of its shares and the potential for discount tightening.
“In our opinion, its current manager, Paul Niven, has done a good job for shareholders since he was appointed in June 2014, having delivered decent outperformance of the benchmark with relatively low levels of volatility,” analysts said.
Performance of the trust vs benchmark in 2017
Source: FE Analytics
Last year, Foreign & Colonial delivered a total return of 21.05 per cent against a gain of 13.84 per cent for the FTSE All World benchmark index, as the above chart shows.
Baillie Gifford’s Monks and Scottish Mortgage trusts round out the global allocation within the model portfolio.
Another change in the model portfolio is a switch from Baillie Gifford Japan to JP Morgan Japanese, which the firm said had been made on valuation grounds.
The Baillie Gifford trust, overseen by outgoing manager Sarah Whitley, is currently trading at a premium of around 7 per cent compared with the JP Morgan Japanese’s 9 per cent discount.
Winterflood noted that while the £725.6m JP Morgan trust – which is managed by Nicholas Weindling and Shoichi Mizusawa – has underperformed the Baillie Gifford fund, its discount is at the wider end of the peer group and offers some relative value.
“JP Morgan Japanese benefits from a well-resourced investment team and we believe the managers’ active, growth-oriented investment approach is attractive,” the analysts noted.
“The deployment of gearing and the portfolios mid- and small-cap biased also make good use of the closed-ended fund structure.”
Within its Asia allocation, Winterflood has switched from Dale Nicholls’s Fidelity China Special Situations trust into JP Morgan Asian, managed by Richard Titherington and Ayaz Ebrahim.
According to the firm, the Fidelity trust is considered a “higher risk vehicle” by the firm due to a high level of gearing, single country mandate and small-cap bias.
“JP Morgan Asian, which is trading on a 9 per cent discount at present, has been added following a notable recovery in performance since the change of management arrangements in May 2016,” the analysts added.
The JP Morgan trust will sit alongside Schroder Asian Total Return in the model portfolio.
Within its emerging markets segment, the firm has switched from Sam Vecht’s five FE Crown-rated BlackRock Frontiers trust to another JP Morgan trust: JP Morgan Emerging Markets, again on valuation grounds.
The four FE Crown-rated JP Morgan trust is overseen by veteran investor Austin Forey, who is supported by the asset manager’s emerging markets and Asia Pacific team.
Performance of the trust vs index in 2017
Source: FE Analytics
“Austin Forey’s investment approach favours quality growth companies and reasonable valuations and he is focused on bottom-up stock selection ahead of macroeconomic views,” Winterflood analysts noted.
“The manager has a long-term approach, with an aim of ‘running the winners’, and portfolio turnover therefore tends to be low.”
The JP Morgan trust joins Templeton Emerging Markets among its favoured emerging markets picks.
Finally, Its US exposure remains unchanged, with the firm sticking JPM American and North American Income.