Income v growth - the trusts to watch

Charles Cade, analyst at Numis, notes a range of income opportunities within the country, singling out Henderson’s Lowland trust and Finsbury Growth and Income.

“There’s quite a range of funds with good managers,” he claims. “Nick Train of Finsbury Growth and Income invests in long term franchises and brands in the consumer and financial sector, with a low turnover rate.”

The £335m trust has been managed by Mr Train for 12 years, based on a concentrated UK portfolio of less than 30 stocks.

Mr Cade says Lowland trust, managed by James Henderson, is also appealing because of its diverse portfolio, which he suggests has a low weighting in the pharmaceutical companies that are conventionally looked to for income.

In the growth sphere, the analyst is impressed with Alex Wright, who took over as manager of Fidelity Special Values in September 2012. Between that time and the start of this month it is third in the UK Growth sector, rising 43.7 per cent in total return, compared with a 23.8 per cent rise for the sector.

“Mr Wright looks for capital with an asset backing. It’s an interesting approach which has been working well since he came on board. At a 10 per cent discount, it’s looking good in terms of yield and performance,” Mr Cade adds.

Mr Cade also tips Neil Hermon’s Henderson Smaller Companies trust, which he says has “a very good track record” through focusing on “really good quality companies”.

For Oriel analyst Tom Tuite Dalton it is experienced managers who “are not afraid of going against the herd” that hold the most value among growth and income investment trusts.

Like Numis, the analyst also sees Finsbury Growth and Income as offering a good opportunity because of its best ideas portfolio, noting that it has a higher dividend than average while also offering growth.

Mr Tuite Dalton picks Aberdeen’s Murray International, which reported a 9.5 per cent dividend increase in 2012, as another solid income driver.

“The trust has a good record of paying out dividends. It’s quite defensively positioned manager, Bruce Stout, is not as optimistic about the economy as others. Aberdeen have good global resources and can research companies all around the world,” he says.

On the growth side, Mr Tuite Dalton selects Jupiter European Opportunities trust because of its “superior track record” in its sector, and its ability to invest in both Europe and the UK.

The trust has been managed by Alexander Darwall for 12 years and is the top performing fund in the Europe sector over one, three and five years to March 1. In five years it rose 96.7 per cent against an average of 35.6 per cent.

However, Simon Elliott, senior analyst at Winterflood, sees more value in trusts looking for growth because of the current demand for yield.

He explains: “A lot of income trusts are trading around net asset value or at premium because people need income and it’s difficult to find at the moment.”

But looking at the UK, Mr Elliott singles out Perpetual Growth and Income trust, which is managed by Mark Barnett, as a source of attractive yield, suggesting the trust represents an opportunity because Mr Barnett is on the same team as top performing manager Neil Woodford.

“They have the same ideas but Neil has been incredibly successful so he is limited by how far he can go down the market cap scale, while Mark has greater flexibility,” Mr Elliot claims. “The total return is very strong and the yield is attractive at 3.4 per cent. They have been able to grow their dividend in the past 10 years. When people have inflation concerns a growing yield looks attractive.”

Mr Elliott says that one way to get a higher level of yield is to seek out less traditional areas for income and in that respect cites the JPMorgan Emerging Markets Income trust (which Winterflood brokers for) as an opportunity for growing yield.

“It was created in July 2010 and since then it has performed really well. It targets a 4 per cent dividend, which it’s growing so that’s encouraging. It’s total return has outperformed its emerging market peers. It’s a good place to be,” he says.

“Its current share price yield is 3.7 per cent so this is a yield play with emerging markets equity exposure.”

The £2.1bn Scottish Mortgage investment trust, which is managed by James Anderson on behalf of Baillie Gifford, looks good as a global equity play, although he warns it is not suitable for all investors.

“It’s a higher beta fund. Mr Anderson is looking at growth four or five years down the line. In benign or rising markets we would expect it to outperform but it might struggle in other conditions - in 2008-09 it had a shocking time and the discount widened,” he says.

“Investors should be comfortable with the higher volatility. It’s not one for widows and orphans- you have to be looking for long term investment.”

HUNT FOR INCOME

TRUSTS YOU SHOULD BE LOOKING AT

Finsbury Growth and Income

Manager: Nick Train

Size: £363.7m

Net asset value: 458.9p

Premium/discount: 0 per cent

5 year performance: 32.1 per cent (share price total return)

Lowland trust

Manager: James Henderson

Size: £356.6m

Premium/discount: -3.6 per cent

5 year performance: 78.9 per cent (share price total return)

Murray International

Manager: Bruce Stout

Size: £1.51bn

Premium/discount: 8.5 per cent

5 year performance: 19.6 per cent (share price total return)

Source: AIC

GOING FOR GROWTH

THE TRUSTS TO KEEP AN EYE ON

Fidelity Special Values

Manager: Alex Wright

Size: £462.1m

Premium/discount: -9.4 per cent

5 year performance: 62.4 per cent (share price total return)

Jupiter European Opportunities

Manager: Alexander Darwall

Size: £387.7m

Premium/discount: 0 per cent

5 year performance: 14.1 per cent

Scottish Mortgage

Manager: James Anderson

Size: £2.6

Premium/discount: -4.5 per cent

5 year performance: 63.2 per cent (share price total return)

Source: AIC