FTSE 250 bound?

The BlackRock Throgmorton Trust (LSE: THRG) is the fund in question. Its aim is simple. To provide investors with capital growth by putting the vast majority of assets to work in small- and mid-cap UK companies. There’s some exposure to overseas markets such as the US, France and Australia in there, but this is primarily a play on the British economy. 

According to its latest factsheet, the trust owns some of the best-performing stocks on the London market over the last year. Luxury timepiece retailer Watches of Switzerland is among the 10 biggest holdings, as are data analytics firm YouGov and Impax Asset Management. Lockdown winner Pets at Home and veterinary services provider CVS Group also feature. 

THRG’s sector allocation is rather contrarian too. It’s heavily exposed to industrial, consumer discretionary and financial shares. By contrast to, say, FTSE 100 member Scottish Mortgage Investment Trust, the number of technology-focused stocks is low at just 8%. For me, this makes Throgmorton’s gains all the more impressive.

So just how well has it done?

In the last year, the trust’s share price has climbed an impressive 61%. Out of interest, the FTSE 250 index that Throgmorton might end up joining achieved 33% over the same period. The latter is clearly far from a bad result, considering the impact of Covid-19 on businesses up and down the UK. Even so, this huge difference does show the value that experienced stock pickers can bring. 

Over a longer timeline, THRG’s outperformance is even more noticeable. The investment trust returned has delivered a staggering annualised return of 27.9% over the last five years. The Morningstar IT UK Smaller Companies benchmark has managed ‘just’ 14.6%. 

Things to remember…

As superb as the performance of this investment trust has been in recent years, I must bear a few things in mind. 

First, there’s no guarantee that recent gains will be repeated. In fact, a slowdown in the UK recovery might lead to a reversal in Throgmorton’s performance. The portfolio does include quite a few highly-rated stocks. These are often some of the first to be jettisoned when sentiment turns.

Second, investment trust share prices — especially those with a small-cap focus — can still be volatile. Minnows may possess the potential to generate better returns than top-tier blue-chips over the long term. Unfortunately, the journey to riches tends to be bumpier due to their relative illiquidity. That said, THRG does possess the ability to ‘short’ companies. So perhaps the downside might be more contained than at other similar trusts?

Third, it should never be forgotten that investment trusts levy fees. Throgmorton’s ongoing charge is currently 0.6%. Yes, the payment of a dividend does help to offset this. However, this is clearly a more expensive option than simply buying a set of promising stocks and sitting back. 

Cautious buy

Notwithstanding the above, I do think this investment trust could still occupy a space in my risk-tolerant portfolio. Also bear in mind that funds tracking the FTSE 250 will have to buy once its value breaches the FTSE 250 threshold. This should provide further support to the THRG share price and make it more appealing to me.

The post Time to buy this FTSE 250-bound investment trust? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The FTSE 100, considered to be the a leading indicator of UK stocks, hasn’t had the best starts to 2018 either — it’s broadly unchanged since the start of the year. That’s because, besides ongoing uncertainty about the UK’s long-term relationship with the EU, worries over global trade and the prospect of an interest rate hike later this year have weighed heavily on the share index.

Outperforming the FTSE 100

Still, there may be some value to knowing which funds have been significantly outperforming the FTSE 100 so far this year. This short period is significant because, whether you’re a trader or a long-term investor, the first six months can give some meaningful clues about where the market could be headed next.

For example, sector funds which are leading the market right now can tell us about investible themes and help us to identify bullish trends. Meanwhile, country-specific or regional funds can inform us about which markets are holding up better than the rest.

With this in mind, here’s a look at three investment trusts that have been outpacing the FTSE 100 so far this year. These may not the absolute top performers of the year, but I reckon they are among the most outstanding and insightful of the top-performing investment trusts in 2018.

Technology

Technology has, once again, been the standout sector in the market this year. And one fund in particular which has really taken off is the Allianz Technology Trust (LSE: ATT).

Driven by stocks such as Amazon and Netflix, which have gained 50% and 118%, respectively, since the start of the year, the Allianz Technology Trust is up by just under 30% so far. This performance compares favourably not only against the FTSE 100, but also against its benchmark index, the Dow Jones World Technology Index, which returned only 15% over the same period.

Strong earnings expectations

Despite a wobbly start in the first quarter of 2018, the technology sector has picked up some steam in the second quarter. Buoyed by strong earnings expectations, technology stocks have shaken off much of the regulatory and protectionist concerns that had been holding them back earlier in the year.

Still, not everyone is enthused. Analysts from Morgan Stanley reckon that already priced into tech valuations is an expected strong earnings season, while sector valuations trade at a significant premium to the market even as uncertainty created by US tariffs (and the threat of retaliatory tariffs) looms large.

Track record

With the FTSE 100 having so few technology stock constituents, the Allianz Technology Trust is a particularly good choice for domestically-exposed investors to get more exposure to the technology sector. The fund has an impressive long-term track record of delivering attractive capital growth, with a five-year cumulative share price return of 260%.

Emerging markets

Surprisingly, another fund which also did particularly well since the start of the year was one which invested in emerging markets. Even as trade war anxiety ruffled on emerging equity markets, the Gulf Investment Fund (LSE: GIF) was one of the best performing funds after having delivered total shareholder return of 14% since the start of the year.

The fund, which seeks exposure to emerging investment opportunities in the Gulf Cooperation Council, or the GCC region, has no doubt benefited from the region’s much-improved economic prospects, which look a lot brighter thanks to rising oil prices.

Financial sector

But although the region is heavily exposed to the oil and gas sector, the fund manager is more keenly invested in the financial stocks, which account for 48.9% of its total assets. The utilities sector is its next biggest exposure, representing 9.6% of assets. This is followed by the energy sector, which represents a further 8.6%.

The fund’s investment adviser believes the GCC banking sector enjoys strong capitalisation and is well placed to benefit from increased infrastructure spending, improving economic growth, and favourable demographic trends. Banking stocks are also attractive due to strong government support for the sector and the recent string of rate hikes by the region’s central banks, which is expected to improve their profitability.

Certainly, the Gulf Investment Fund may not be suitable for all investors as the value of its investments can experience high levels of volatility. That said, as shares in the trust trade at a 15% discount to its net asset value (NAV), it may be worth a closer look for those with a bigger risk appetite seeking an undervalued opportunity.

UK smaller companies

Meanwhile, the BlackRock Throgmorton Trust (LSE: THRG) is a fund to consider for investors seeking to invest closer to home. Shares in the UK smaller companies investment trust have gained 18% year-to-date, making it one of the best-performing funds in the UK small- and mid-cap space.

Fund manager Dan Whitestone reckons there isn’t an industry that’s not facing some form of disruption and that this new wave of disrupters is changing consumer behaviour. As such, his strategy rests on identifying those companies that are disrupting established industries.

Holy trinity

Whitestone has a preference towards companies that have in place the “holy trinity” of a strong management team, a great product, and one that is operating in an attractive sector. The fund’s top five holdings at the end of May included Ascential, Dechra Pharmaceuticals, Integrafin, Robert Walters and Fevertree Drinks.

Fees for the BlackRock Throgmorton Trust are moderate, with an ongoing charges ratio (including performance fees) of 2.2% for its last financial year.

The post 3 investment trusts that have been smashing the FTSE 100 so far this year appeared first on The Twelfth Magpie.

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Jack Tang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.